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UK’s HMRC extends open banking to payroll payments

Tax payments: HMRC wants to make payments to government simpler and safer | Credit: Fabrizio Van Marciano

The UK’s tax department has gone live with a further step in embedding open banking into its operations.

Just weeks after HM Revenue & Customs (HMRC) introduced a ‘Pay by bank account’ option for people making online self-assessment tax returns, it has launched a similarly open banking-enabled option for PAYE (Pay-As-You-Earn) payments – tax paid direct from workers’ salaries.

The department will very shortly further extend the open banking-enabled payment option to corporation tax and value-added tax (VAT). The overall aim, in short, is to make payments to government simpler and safer.

Within the UK government, HMRC has been at the forefront of exploring the possibilities of open banking, which 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.

Extension of open banking to PAYE is most likely to appeal to organisations’ payroll managers, whose job typically includes logging employee pay, calculating deductions, distributing payslips – and making PAYE payments to HMRC. It is estimated that PAYE is applicable to about 30 million workers, making it a more significant tax regime than self-assessment, which is applicable to about 12 million.

PISP reaches PAYE

PAYE: a fundamental element of an employee’s payslip in the UK | Credit: Global Government Fintech

The ‘Pay by bank account’ button’s creation is the direct outcome of a HMRC procurement revealed by Global Government Fintech last September – the first time that a government department had run a procurement process specifically for open banking implementation.

The fiercely contested shootout for the contract, worth up to £3m ($4.2m), climaxed with the appointment of Ecospend, a London-based fintech company.

Ecospend’s brief 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, individuals and organisations making payments to HMRC 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/payment reference.

Those opting to pay their tax via this method ‘tick’ to provide consent for Ecospend to securely connect them to their online banking and initiate an authorised payment on behalf of HMRC (an ‘Open Banking Privacy Notice’ seeks to reassure users). The 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.

The ‘Pay by bank account’ button went live for self-assessment returns on 24 March and the option was extended to PAYE on 5 May.

‘Statement of confidence’

The Open Banking Implementation Entity (OBIE) – the body set up by the Competition & Markets Authority (CMA) to deliver open banking in the UK – worked closely with HMRC on the tender that saw Ecospend awarded its contract.

“HMRC are pressing ahead with their expansion of open banking to enable a simpler, more accurate and efficient way for the UK’s SMEs to settle their tax obligations,” said Simon Lyons, the body’s head of ecosystem engagement. “The expansion into PAYE brings the benefits of open banking to an entirely new population from self-assessment. It’s a statement of confidence in the technology and also the realised benefits.”

The number of people who have so far made self-assessment payments via open banking has not been announced. However, 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 during the Ecospend-powered button’s first week of operation. 

Ecospend chief operating officer Charlie Craven told Global Government Fintech that “indications suggest that our PISP payment is already a popular method of paying taxes” and that the company was “excited to see payment initiation expanding into PAYE – and soon VAT, corporation tax and others”.

“Our success so far with self-assessment, and our expansion across HMRC proves that open banking is ultimately here to provide a better consumer experience. The fact that we can say this fills us with confidence about the potential of open banking,” he added.

HMRC’s digital trajectory

‘Pay by bank account’: Global Government Fintech’s report on the launch of HMRC’s Ecospend-powered button for people making self-assessment returns

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 $120,000) – 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.

“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 online audience at the 31 March webinar.

*** The CMA has published the responses it has received to its consultation on the future governance of open banking, which ran during March, including submissions from numerous banks; lobby groups; fintech companies; OBIE’s current trustee; the all-party parliamentary group (APPG) on open banking and payments; and the Information Commissioner’s Office. OBIE has itself published a blog by its head of policy, Alan Ainsworth, on the topic.


‘Tax collection in the age of digital’: Global Government Forum is hosting a webinar on Tuesday 21 September 2021, supported by knowledge partner IBM: click here for more details and to register


Click here for Global Government Fintech’s dedicated open banking section

Click here for Global Government Fintech’s report on the launch of HMRC’s ‘Pay by bank account’ option for people making self-assessment tax returns

Click here for Global Government Fintech’s news story on HMRC’s award of the first UK government open banking contract to Ecospend

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

here for Global Government Fintech’s news story on HMRC’s request for information (RFI) on ‘tax-compliant banking products’

Click here for Global Government Fintech’s news story on the launch of the Competition & Markets Authority (CMA)’s consultation on the future governance of open banking