Home Payments HMRC tackles ‘unmatched’ payments in data-led transformation project

HMRC tackles ‘unmatched’ payments in data-led transformation project

Tax payments to HMRC: the ‘Intelligent Payment Processing’ project involves the introduction of a single ‘automation-supported’ payments process and database to replace more than 50 tax regime-specific processes | Global Government Fintech montage (including an image from Firmbee, Pixabay)

HM Revenue & Customs (HMRC) is looking to tackle the perennial problem of ‘unmatched’ payments – payments sent to the department with neither a correct reference number nor a correct customer name – as part of a multi-year transformation project using digital data and technology.

About 2.5 million of the approximately 50 million payments received by the UK department each year fall into this category, with the problem usually being that customer information supplied with the payment is either incomplete or incorrect. This means they need to be allocated (matched to an account’s ‘open’ items) by caseworkers – typically a labour-intensive process.

HMRC has gone live this month with ‘automating’ what it describes as ‘simpler’ unmatched payments – about 10 per cent of new unmatched payments in total. It plans to progress in stages through more challenging unmatched payments although some are unlikely to be automated as they will be symptoms of ‘much wider payments issues’.

Global Government Fintech can reveal that the initiative is part of a major behind-the-scenes transformation project called ‘Intelligent Payment Processing’ (IPP), which involves the replacement of more than 50 HMRC tax regime-specific payments processes with a single ‘automation-supported’ payments process and database.

IPP has objectives including: improving the accuracy of initial allocation by correcting simple customer errors automatically (see example lower down this article); automating aspects of manual allocation processes and ‘capturing allocation information for future use’; removing the need for HMRC workers to refer customers’ requests or cases to colleagues (for example when a contact-centre adviser needs to refer a customer’s request to a back-office expert); and using analytics to increase the sophistication and effectiveness of the process over time.


IPP explained

HMRC’s Intelligent Payment Processing project director is Yvonne Withams, who has been leading the development of IPP with the support of a range of the department’s IT teams as well as some external IT delivery support, principally from France-headquartered IT supplier Capgemini.

The project is a development of HMRC’s ‘Enterprise Tax Management Platform’ (ETMP), the department’s pre-existing home to its services for business customers. Capgemini has a three-year contract worth almost £51m (about $61.6m) running from December 2021 related to ETMP, plus further HMRC business as one of the department’s main IT suppliers.

The most fintech-related elements of IPP, which has been in development for 18 months, include automated ‘data-matching’ and automated payment ‘repair’ (by reference to payment history). The department wants to produce and capture ‘structured’ data that can be used for automation and analysis in place of what is known as ‘free text’ data. Specifically, it has designed an ‘allocation portal’ to record caseworker actions as structured steps, and replaced about 25 free text internal referral forms with one structured (digital) referral form. The broader ambition is to use a mix of data insights, analytics (undertaken by the department’s data science team) and experimentation by an IPP development team to embed ‘data-led’ ways of working.

The process to combine the 50 tax regime-specific payments processes into IPP’s ‘single workflow’ is already well progressed. But ‘niche’ areas are still to be included, as well as ‘feeder processes’ where other parts of HMRC undertake work relating to payments (in or out) and which the core IPP/payments team are working with to streamline and standardise.

One example of how IPP is designed to benefit both the department and taxpayers is in identifying tax agents (who deal with HMRC on an individual or an organisation’s behalf) with recurring payment problems. The aim is to use data analysis to identify whether there are large numbers of unresolved payments belonging to any given agent. This would be a signal to investigate and hopefully resolve any underlying issue.


HMRC’s need for IPP

HMRC has to date operated multiple processes to allocate payments manually, working with multiple IT systems that did not provide a single source of structured data about the reasons for payment allocation failures and the best methods for remedying them.

Processes are further fragmented by type of payment – for example, Faster Payments (real-time/almost immediate payments), BACS (bank-to-bank transfer), CHAPS (typically high-value payments) and cheques – as well as tax regime and payment value. This complexity has meant that HMRC team members have tended to become focused on allocation of particular payment types and expertise resided within individuals – a particular problem should a staff member leave HMRC.

For people or organisations paying tax, this has also meant that payment allocation problems were unlikely to be solved at the point of contact and issues needed to be referred to caseworkers. It has also meant that HMRC’s focus has been on resolving individual issues rather than preventing them.

IPP explainer / example: automated payments
Sally Jones (a fictitious citizen) sends HMRC a payment of £520. She has not provided a tax reference with her payment, so the department’s IT systems cannot automatically allocate her payment. She is due to pay tax on her VAT and Pay-As-You-Earn accounts (PAYE is the system employers use to deduct income tax and national insurance before paying employees’ wages). Until recently, a caseworker would have needed to check both accounts and allocate Sally Jones’s payment against the correct one. IPP searches for a liability corresponding to her payment, finds a £520 PAYE liability and no other matches, and so automatically allocates her payment to that PAYE liability.

‘Dummy’ data and data virtualisation

Over the next three years, HMRC plans to ‘develop and evolve’ IPP, automating a growing number of more straight-forward types of unmatched, missing payments and reallocations, as well as developing further capabilities.

Self-assessment and corporation tax payments are some of the tax types in line to fall under IPP.

Plans also include testing and potentially deploying ‘webchats’ (live chats) to enable taxpayers to find and allocate missing payments by providing details that the webchat can feed into IPP’s automated allocation process; using a ‘cloud data environment’ to test potential enhancements using ‘dummy’ data with characteristics comparable to real payment data; and using ‘data virtualisation’ to provide access to other HMRC data sources to help resolve payment issues and give a better picture of a customer’s payment position without needing to create application programming interface (API) links between systems in order to do this.

The aim is that the new system automatically passes cases to caseworkers according to their expertise and case priority; and frees up caseworkers to provide expert support for customers (and, where applicable, their agents) with complex payment affairs.

As the department develops its ability to match data and draw on customer payment histories, the aim is that IPP should also be able to make repayments even when it does not have all information needed to do so automatically. Outbound payments would be the last payment type to fall under IPP. In this area, too, HMRC will be looking to ‘automatically repair’ missing information. If there is doubt or risk, a caseworker would get involved to check and make sure the payment is heading to the correct account.

RELATED READING Global Government Fintech’s coverage of HMRC’s use of open banking

‘As exciting as open banking’

IPP is a separate initiative (in structural terms) to HMRC’s embedding of open banking technology to enable people and organisations to pay tax in this way – a development that saw the (ongoing) engagement of a fintech company, Ecospend, more than two years ago. But HMRC staff are also exploring opportunities at the confluence of IPP and open banking, which pre-populates payment details in order to minimise the risk of errors.

The department recently completed its rollout of open banking across all tax payment types capable of supporting it – and set out its next priorities as it looks to further integrate open banking technology into its services.

“We are at the beginning of a journey every bit as exciting as – and possibly in the future convergent with – open banking because we’re matching payments with far less information from customers,” Withams – a former lead consultant in the Cabinet Office’s consultancy team and associate programme director for consultancy at the former National School for Government – told Global Government Fintech this week.

“At the moment we’re focused on customers who have historically found it difficult to provide the data required for payment allocation but once we have provided fully for this customer segment it may well be possible to move on and provide services that make the HMRC payments relationship easier for a wider range of people,” she added.

In exploring the nexus where IPP and open banking combine, Withams is working closely with HMRC’s head of open banking payments Rachel McLaren, as well as HMRC’s overall payments head Nick Down. They are exploring the possibility of combining IPP’s data about types of customers with a propensity to make payment errors and open banking data on types of customers using open banking ‘in order to identify customers making payment errors who might find open banking helpful, so that HMRC can highlight that option for them’.


HMRC’s head of open banking payments, Rachel McLaren, is among the speakers at the Global Government Fintech Lab 2023 in Dublin on Thursday 18 May. The Lab, our one-day event for senior public servants interested in exploring and implementing fintech solutions, is being organised in partnership with Ireland’s Department of Finance. The event, which is free to attend for all public servants, will feature keynote speeches, panels and breakout sessions focused on fintech-related opportunities and challenges for those working in central government, agencies and other public authorities.