The UK’s HM Revenue & Customs has introduced a ‘Pay by bank account’ option for people filing online self-assessment tax returns, with open banking’s advocates hailing the moment’s significance. Global Government Fintech editor Ian Hall sees the sun rise on an apparent global first
During the early morning of 24 March, quietly and without fanfare, the stars aligned in the unexplored universe where tax payments and open banking collide. With senior figures at HM Revenue & Customs (HMRC) watching closely, a ‘Pay by bank account (new)’ button went live on the UK government website through which citizens file self-assessment tax returns, with the first payment flowing through a few minutes afterwards.
Nervous energy was also tangible at other organisations stoking the coals for a successful take-off: Ecospend, the UK fintech company ‘behind’ the button; and the Open Banking Implementation Entity (OBIE), the body set up by the Competition & Markets Authority (CMA) to deliver open banking in the UK that worked closely with HMRC on the tender that saw Ecospend awarded its contract.
‘A little history, today the 24th March at about 7:03am HM Revenue & Customs launched a little button on their website for Self-Assessment. It is called “Pay by bank account”. It’s actually open banking assisted by Ecospend,’ wrote OBIE’s head of ecosystem engagement, Simon Lyons, later that day on LinkedIn.
‘A few of us made multiple payments to our self-assessment accounts,’ Lyons continued. ‘Oliver Heath has the title of the first payment made by Open Banking to HMRC. He deserves it.’ Heath is a senior product manager at Capgemini and subsequently posted on LinkedIn that that he was ‘really proud to have been part of this’; HMRC’s director of strategy, design, architecture and innovation, Antony Collard, quipped that Heath would be ‘deservedly enshrined in history’.
The successful payment, made as many people were still tucked up in bed, confirms the first embedding of open banking within a government anywhere in the world, according to those championing the moment.
Open banking involves the use of open application programming interfaces (APIs) to enable bank account holders to share their financial data with third parties. More than three million UK citizens and businesses now using open banking-enabled products in the private sector. Global Government Fintech has revealed a series of developments in recent months about how the UK government is starting to incorporate open banking into its own operations.
From ‘stealth’ to sunlight
So, what’s the story behind the story? Within the UK government, HMRC has been at the forefront of exploring open banking’s possibilities. The ‘Pay by bank account’ button’s creation is the direct outcome of a HMRC procurement revealed by Global Government Fintech on 1 September last year – the first time that a government department had run a procurement process specifically for open banking implementation.
The fiercely contested battle for the contract, worth up to £3m ($4.1m), saw the previously unheralded Ecospend, which described itself at the time as having been operating in ‘stealth mode’, emerge triumphant.
The London-based fintech company’s brief was (and is) to provide ‘account-to-account’ payment software that allows HMRC to process payments, or, to use an acronym, launch PISP (Payment Initiation Service Provider) services. Until now, the 12 million-plus citizens who complete self-assessment forms have needed to open their banking software (for example, log in to their online bank account) and manually complete a bank transfer payment, also inputting their tax code.
The new Ecospend-powered service uses validated and pre-populated payment details, enabling payments directly from a payer’s bank account. This automation should increase speed, reduce human error (for example, if someone were to mistype their tax reference number), and also has the potential to reduce fraud.
‘Fast, safe and easy to use’
Among the HMRC team members watching closely are payments strategy project lead Melanie Reid and Nick Down, the department’s head of payments.
“HMRC is the first government department to utilise open banking Payment Initiation Service in the world,” the latter tells Global Government Fintech. “This new service is fast, safe and easy to use, allowing our customers more choice in how they pay us, whether at home with their computer, or on their smartphone or tablet.”
Down pays tribute to Ecospend’s efforts, as well as acknowledging “valuable help” from OBIE. “We are continuing to work with them, and stay closely involved with the rapid development of open banking, as we search for other improvements for customers. The initial take-up of payment initiation thus far has exceeded our expectations, which is very encouraging and bodes well,” he says.
In Ecospend’s Chelsea head office, meanwhile, Metin Erkman, founder and chief executive of the 50-strong company, is “really pleased” by the performance so far. “To see open banking being adopted by the UK government is an important step in fulfilling the promise of open banking,” he says.
‘Making Tax Digital’ forms the backdrop
HMRC began to explore open banking in 2019, with the broader context being the digitalisation of tax administration, including the high-profile ‘Making Tax Digital’ (MTD) initiative.
MTD already applies to VAT-registered businesses with a taxable turnover above the UK’s VAT threshold of £85,000 (about $117,000) – they are now required to keep digital records and use software to submit VAT returns. VAT-registered businesses with a taxable turnover below £85,000 will be required to follow MTD rules from April 2022 and MTD for Income Tax Self-Assessment (MTDfITSA) is in line to come in one year later. Specifically, this means that, from April 2023, millions of businesses, self-employed people, property landlords and taxpayers – who would normally file a self-assessment tax return once a year – will be required to keep records digitally and send summaries of their income and expenditure to HMRC four times a year, in addition to an annual declaration.
A growing number of software provider packages have already become compatible with MTDfITSA (those ‘available now’ and those ‘in development’ are listed on Gov.UK).
One of these companies, Untied – which describes itself as a personal tax app and is aimed at sole traders – also declared a breakthrough moment in recent weeks, announcing on 15 February that one of its users had successfully made the UK’s first MTDfITSA submission powered by open banking data (Untied’s fintech partner is Fractal Labs).
And so the journey begins…
“It’s an exciting time for taxes and open banking,” says Untied’s chief executive, Kevin Sefton, reflecting on the Untied-Fractal achievement (the submission took place on 23 January) and the launch of HMRC’s ‘Pay by bank account’ button.
“We’re delighted to see HMRC and Ecospend achieving a rapid go-live for making open banking payments from within the HMRC payment pages. This is important as people want to be able to pay quickly and securely from their tax account. HMRC have stepped up and made sure that this is possible,” he says.
To be clear: Ecospend-powered payments are open banking payments initiated to HMRC from within HMRC’s own apparatus. Untied’s app allows make to payments to HMRC using Fractal’s Payment Initiation Service. “The Untied- and Fractal-powered payment was the first open banking payment initiated to HMRC from outside HMRC’s systems. This is important where people are using third-party software to manage their taxes,” says Sefton.
“Both ‘firsts’ reflect the opportunity to use open banking in many different ways across the tax system, reducing friction and increasing trust,” he adds. “But this is less about the start-line, and much more about how far we collectively will travel in simplifying tax administration and optimisation for the benefit of taxpayers and the country.”
‘As easy as being on your phone’
So, what’s next? Although those twitching with excitement on 24 March are happy with how things have gone over the past week, a fuller judgment will only become possible as HMRC tracks take-up over time.
Will people feel comfortable using the new button? An ‘Open Banking Privacy Notice’ (published on 23 March) should help to reassure users, while you would typically expect government websites to benefit from a higher-than-average degree of user trust relative to non-government sites. That said, you would expect many creatures of habit to stick with their existing payment preferences (for example, a manual bank transfer).
In terms of awareness, the button’s location at the top of the payment options list (and label as ‘new’) will at least make it difficult to miss.
HMRC’s digital payments business lead, Rachel McLaren, told an OBIE-organised webinar held on 31 March that HMRC had received more than 5,000 payments via open banking so far. The Ecospend-powered button will also be extended to PAYE (Pay-As-You-Earn) workers and businesses paying corporate tax and VAT.
“The financial relationship between the citizen and the state should be as easy as being on their phone – as easy as [people’s] relationship with their bank, their grocers or their bookies [bookmaker]. I think that’s in prospect,” HMRC’s innovation lead, Nick Davies, told the audience during the same webinar.
Positivity that is music to the ears of those who champion fintech’s potential for governments.
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Click here for Global Government Fintech’s analysis of the UK government’s explorations of open banking’s potential to ‘streamline’ tax payments for small businesses
Click here for Global Government Fintech’s news story on HMRC’s request for information (RFI) on ‘tax-compliant banking products’
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