Better use of new and improved third-party data to make it easier to pay tax right first time

Question 1

Summary

Accepted Answer

Subject of this consultation

This consultation explores the opportunities for improving the quality of data acquired from third parties for tax administration. The new and improved data will be used to help taxpayers get their tax right the first time, whilst closing the tax gap.

Scope of this consultation

The core scope of this consultation is improving the quality of specific data already acquired under HMRC’s data-gathering powers provided by Schedule 23 of Finance Act 2011 (often referred to as the Department’s ‘bulk data gathering powers’). The datasets in scope are those relating to:

financial account information – including bank and building society interest (BBSI) and other interest
card sales – data shared by providers of card acquiring services, such as merchant acquirers

We are also testing early thinking regarding collecting new data from financial institutions on dividend income and other income from investments.

Who should read this

We welcome engagement from third parties, particularly those data suppliers in scope of this consultation (financial institutions and providers of card acquiring services).

The government also welcomes engagement from any taxpayer or interested party with views on the efficacy and reform of our bulk data gathering powers and safeguards. This is likely to be of particular interest to tax agents, tax professionals, legal professionals, payroll professionals, bookkeepers, software providers, intermediaries, financial advisors and their clients.

We would also be interested in hearing from stakeholders with a wider interest in how government uses data and information to administer public services.

Duration

The consultation runs from 26 March 2025 to 21 May 2025.

Lead official

The lead officials for this consultation are A. Ali, B. Diamond, P. Herbertson and J. Rai of HM Revenue and Customs (HMRC).

How to respond or enquire about this consultation

Any responses or queries about this consultation should be emailed to thirdpartydata@hmrc.gov.uk.

Additional ways to be involved

The government welcomes collaboration with a wide range of stakeholders and will organise stakeholder discussions to ensure that views are heard from across the range of sectors who interact with the tax system. Please contact HMRC using the details above if you would like to be involved.

After the consultation

Responses and engagement with this consultation will help inform policy and legislative changes for how data will be acquired from third parties to reduce administrative burdens for HMRC, taxpayers and third parties, and to help close the tax gap.

Getting to this stage

This consultation builds on several previous government consultations on acquisition of data from third parties including the 2021 Office for Tax Simplification’s Making better use of third-party data, the 2021 Reporting rules for digital platforms consultation, the 2023 Tax Administration and Framework Review: Information and Data call for evidence and the 2024 Crypto-asset Reporting Framework, Common Reporting Standard amendments, and seeking views on extension to domestic reporting. The feedback from these consultations have helped inform the proposals outlined in this consultation drawing on the responses for balancing the benefits for taxpayers and the tax system against reporting burdens on third parties.

Previous engagement

In the summer of 2023, as part of the ‘Tax Administration and Framework Review: Information and Data’ call for evidence, HMRC held several roundtables with industry bodies to explore proposals for how HMRC could update our information and bulk data gathering powers. Annex A provides a list of stakeholders who responded to the call for evidence.

Question 2

Foreword

Accepted Answer

As Exchequer Secretary to the Treasury, I am committed to improving the efficiency and effectiveness with which HMRC collects tax. I have therefore set out 3 strategic priorities for HMRC: to improve customer service; to close the tax gap; and to modernise and reform the tax system. Making better use of third-party data offers the potential to unlock benefits for all 3 of these objectives.

Improved third-party data will enable HMRC to provide the modern services offered by other international tax authorities to UK taxpayers. For example, being able to accurately pre-populate more sources of income in tax returns will reduce customer admin burdens and make it easier to get tax right first time.

In addition, third-party data can give HMRC insight into those who undermine the fairness of the system by misrepresenting their income or hiding their assets. Making better use of available third-party data will enable HMRC to raise the bar on tax compliance, delivering revenue to fund our core public services.

To unlock the benefits of new and improved third-party data, the government must modernise the way it acquires routine data as part of HMRC’s bulk data-gathering powers. Complemented by transformed IT systems, the proposed improvements are designed to ensure that HMRC receives the right data, of the right quality, at the right time to deliver for taxpayers.

We recognise that these changes will impact a range of stakeholders and are keen to work closely with third-party data providers, particularly the financial services sector. We look forward to working together to help design the changes and develop improvements for both taxpayers and HMRC.

James Murray MP
Exchequer Secretary to the Treasury

Question 3

Executive summary

Accepted Answer

The government recognises the effective collection and use of data from third parties as an essential building block to reform and modernise the tax and customs system. The 2023 ‘Tax Administration Framework Review: information and data call for evidence’, upon which this consultation builds, drew on international comparisons to demonstrate opportunities for HMRC to make better use of new and existing third-party data to:

improve the customer experience and HMRC’s day-to-day performance by reducing the volume of information taxpayers must provide
close the tax gap by helping taxpayers get their tax right first time and ensuring HMRC has higher quality data to support better casework activity
modernise and reform its digital service, reducing costs and administrative burdens for both HMRC and taxpayers

The government must modernise its legislative framework to deliver these benefits. Under existing bulk data-gathering powers, third-party data is often received too slowly and is not of high enough quality to be used for the key service improvements deployed by other tax authorities, such as pre-population of tax returns.

This consultation outlines policy options, and associated questions for consultation, on how HMRC can reform legislation to receive the right data, of the right quality, at the right time. This discussion includes:

chapter 1 – outlines government’s plans for a phased ‘dataset by dataset’ approach to reform starting with 2 key datasets - financial account information (consisting of bank and building society interest and other interest) and card sales (merchant acquirer) data
chapter 2 – progressing from an inefficient notice-based approach towards modern ‘standing’ reporting obligations where data are provided closer to real-time
chapter 3 – improving how data is reported to HMRC by standardising the use of a specific schema (format) and mandating the collection of key data fields used for processing and matching data
chapter 4 – enhancing data quality with a reformed penalties regime and the introduction of due diligence requirements
chapter 5 – some international tax authorities acquire and exploit third-party data sources that are not yet available to HMRC. This chapter poses exploratory questions on the potential to close the reporting gap with international standards by extending reporting to include wider sources of financial account information (with a focus on specific categories of dividends and other investment income). The government, in due course, intends to consult on changes to other datasets not included in the scope of this consultation where there is a case to do so

The government recognises that changing the way data is supplied to HMRC will place burdens on third parties, including one-off costs for upgrading systems and changes to processes. We intend to work closely with third parties to ensure our adopted approach is proportionate and takes advantage of the efficiency opportunities offered by modern technologies.

Question 4

1.  Overview and context

Accepted Answer

Introduction

HMRC already receives, and makes use of, data from a range of third-party sources to support tax administration, including (but not limited to):

other government departments
withholders of tax (meaning employers and pension providers)
financial services providers (meaning banks and merchant acquirers)
online sales platforms
overseas tax authorities under relevant international agreements

However, despite the range of information provided, HMRC continues to lag behind international comparators in its use of third-party data for tax administration.

Published on 27 April 2023, ‘The Tax Administration Framework Review: information and data’ call for evidence sought to better understand the reasons why, and what action the government could take to close the gap.

The Tax Administration Framework Review: information and data call for evidence

The call for evidence closed on 20 July 2023 and the government is grateful to those who provided written feedback and participated in focused roundtable meetings with HMRC. In total, we received 30 written responses, primarily from taxpayer and agent representative groups, charities, businesses and software developers. Responses were also received from accountancy, finance, and law firms. Annex A provides a list of the stakeholders who provided written feedback.

Annex C sets out a summary of the feedback provided, and the government’s response. Our responses signpost where feedback to relevant questions on Schedule 23 of Finance Act 2011 (the legislation that provides many of HMRC’s data-gathering powers) have contributed to the policy options presented in this consultation. We have also outlined next steps for questions outside the scope of this consultation – those relating to ‘Information and Inspection Powers’ of Schedule 36 of Finance Act 2008 and Section 114 ‘Computer records’ of the same Act.

Any developments relating to Section 114 (of Schedule 36 Finance Act 2008) will be addressed separately in future.

Adopting a phased approach to reform

As per recommendations by the Office for Tax Simplification Making better use of third-party data (2021) report, the government intends to take a phased approach to reforming how HMRC acquires data from third-party data sources. This approach eases deliverability for the department and third-party data providers, whilst avoiding the risks associated with a ‘one size fits all’ approach to datasets flagged by stakeholders in response to 2023 ‘The Tax Administration Framework Review: information and data call for evidence’.

Phase 1: financial account information and card sales (merchant acquirer) data

For phase one of the reforms, the government plans to start with key third-party data sources already received under Schedule 23 of Finance Act 2011 – HMRC’s bulk data gathering powers for risk assessment to support compliance activity. These data relate to:

financial account information, including BBSI and other interest datasets (Schedule 23 FA2011 Paragraph 12)
card sales data provided to HMRC by merchant acquirers and other providers of card payment services, for example payment facilitators (Schedule 23 FA2011 Paragraph 13A)

Financial account information (BBSI and other interest) and card sales (merchant acquirer) make up a significant volume of the data already collected by HMRC under Schedule 23 of Finance Act 2011. Further information on the datasets and how HMRC plans to use them are provided below.

At Autumn Budget 2024, the government announced that digital monthly reporting for Individual Savings Account (ISA) will be mandatory from April 2027. HMRC is developing the new ISA reporting regime in collaboration with the ISA industry and later this year will publish draft legislation. The proposals in this consultation have been developed alongside the work on ISA, tailoring the approach where appropriate. However, ISAs are outside the scope of this consultation, and, in future, the data reported by ISA managers on accounts will be continued to be acquired under the ISA regime.

Financial account information (BBSI and other interest)

HMRC has been receiving data on bank and building societies interest for decades. The number of taxpayers with interest income, particularly those with relatively small tax liabilities, is increasing. Compliance relating to large volumes of small liabilities is administratively challenging. Recent estimates show that an additional 893,000 taxpayers will have to pay tax on their savings by 2028 to 2029 (compared with 2022 to 2023) due to fixed tax allowances and higher interest rates. Therefore, there is a growing case to improve data quality reporting to ensure the process for paying tax is easier for taxpayers and that the correct amounts are accounted for and collected to fund our vital public services.

Reforming HMRC’s collection of data on financial accounts would enable the department to:

improve and expand Pay-As-You-Earn (PAYE) coding out of interest income – which can help remove the requirement for many taxpayers to complete an Income Tax Self Assessment (ITSA) return
introduce pre-population of interest income in ITSA – to modernise the customer offering helping taxpayers get tax right first time
improve its targeted approach to compliance and debt management based on a fuller view of customer circumstances
provide wider customer service improvements, including presenting more accurate tax forecasts to taxpayers in their digital tax account

Card sales (merchant acquirers)

HMRC has had the ability to acquire data from the leading merchant acquirers in the UK since 2013. Merchant acquirer data relates to aggregate amounts remitted from providers of card acquiring services to merchants ^{[footnote 1]}. It does not include individual, transactional level data. This data is used for checking against tax records to ensure accuracy and detect non-compliance. Card sales data is essential for understanding economic activity in the UK with the number of card payments increasing substantially over the last decade. UK Finance estimates that card payments accounted for 61% of all payments in 2023. Comparably, payments made via cash have declined at a similar rate.

Reforming HMRC’s collection of card sales data will enable the department to:

identify unregistered taxpayers and allow HMRC to automatically register them for the relevant tax regime, easing the registration burden for compliant customers and preventing non-compliant individuals and businesses from evading tax, helping to address the hidden economy tax gap of £2.2 billion
make it easier for small businesses to get their tax right first time – HMRC plans to provide tailored feedback via digital nudges and prompts where improved card sales data is inconsistent with income declared by taxpayers. The department expects this to be of help to small businesses (who accounted for around 60% (£24.1 billion) of the overall tax gap in 2022 to 2023)
support better targeted compliance activity where taxpayers deliberately misstate their business income

Further phases of reform

Further phases are planned to include other data sets that HMRC already collects under Schedule 23 of Finance Act 2011 and possible new data sets (such as dividends and other investment income - see chapter 5). At each stage of reform, we will weigh up benefits to taxpayers and HMRC against the respective burdens on third-party data suppliers. Emerging thinking on potential datasets for further phases of reform can be found in Annex D.

Wider context

This consultation, and its proposals, builds on lessons from the international cooperation on Organization for Economic Co-operation and Development (OECD) initiatives, including the Common Reporting Standard (CRS), Reporting Rules for Digital Platforms (RRDP), and Crypto Asset Reporting Framework (CARF).

Further information on international data shares and wider HMRC transformation initiatives, such as Making Tax Digital, can be found in Annex E.

Question 5

2.  Timely reporting – standing reporting obligations and frequency

Accepted Answer

This chapter outlines options for how the government will:

progress from a notice-based approach towards modern ‘standing’ reporting obligations for financial account information and card sales datasets in phase one of the reforms
maintain the use of Schedule 23 of Finance Act 2011 for ad-hoc requests
improve the timeliness and frequency of data provided to HMRC to deliver key service improvements

The case for introducing standing reporting obligations

Issuing notices is a manual, resource-intensive process for HMRC and creates uncertainty for data-holders. Under Schedule 23 of Finance Act 2011, HMRC must issue a notice each time it requires ‘relevant data’ from ‘relevant data-holders’, sending 1000s of notices each year (see Annex B for further information on the legislative framework). Annually, HMRC sends more than 550 notices to data-holders who pay or credit interest, covering about 130 million accounts, and over 100 notices to card acquiring service providers, with HMRC receiving around 20 million lines of data on card sales.

Whilst notices are useful for ad-hoc requests, many respondents to the 2023 ‘The Tax Administration Framework Review: information and data’ call for evidence suggested that standing reporting obligations for repeat requests, similar to those for PAYE and CRS data, could reduce this burden for both HMRC and the data supplier. For example, for HMRC standing reporting obligations will save time, resource and costs for drafting and sending out notices. For the data supplier, a standing reporting obligation would allow for greater certainty and planning by enshrining obligations around what and when suppliers must report.

The government plans to introduce new legislation to establish standing reporting obligations for financial account information and card sales data in phase one of these reforms. Further phases of reform will consider extending standing reporting obligations to additional datasets.

Reporting under Schedule 23 of Finance Act 2011 will remain in place for data reported regularly (but not yet reformed) and ad-hoc requests.

Defining the scope of standing reporting obligations for domestic reporting

The scope of standing reporting obligations for financial account information

For phase one of the reforms, the government’s preferred option is to maintain the existing scope of ‘relevant data-holders’ and ‘relevant data’ for reporting ‘interest’ data under Schedule 23 of Finance Act 2011. This will make the reforms simpler for financial institutions and HMRC whilst avoiding the complexity and cost associated with introducing a new scope.

In coming to our conclusion, we also considered adopting the scope of related international data-sharing standards. On 6 March 2024, the government published its consultation on Cryptoasset Reporting Framework, Common Reporting Standard amendments, and seeking views on extension to domestic reporting. The consultation sought views relating to the implementation of optional elements to the rules agreed at OECD level and the extension of adopting the rules domestically ^{[footnote 2]}. The government welcomes the constructive feedback received on extending CRS to include reporting by financial institutions in the UK on accounts held by UK residents (‘domestic CRS’).

Following stakeholder feedback, the government will not be taking forward unmodified domestic CRS reporting. This is because of:

the discrepancy between the CRS reporting date of 31 December and the UK tax year end of 5 April
potential data gaps due to exemptions under CRS that do not exist under Schedule 23 of Finance Act 2011, such as not reporting on accounts relating to publicly listed, active, non-financial entities (NFEs)

As part of a potential further phase of reform, the government is keen to work alongside the financial services sector on how best to close the gap between the scope of information currently reported on UK financial accounts (under Schedule 23 of Finance Act 2011) and accounts held overseas (under CRS). Exploratory questions, including on reporting data relating to specific types of dividends and other income from investments, are provided in Chapter 5.

Question 1: Do you support maintaining the scope of Schedule 23 of Finance Act 2011 paragraph 12 ‘interest’ as HMRC moves towards standing reporting obligations for financial account information? Are you aware of any unforeseen consequences or missed opportunities?

The scope of standing reporting obligations for card sales (merchant acquirer) data

As per financial account information, the government’s preferred option is to maintain the existing scope of ‘relevant data-holders’ and ‘relevant data’ for ‘merchant acquirer’ reporting under its modernised data-gathering powers. This will make the reforms simpler for both third-party data providers and HMRC whilst avoiding the complexity and cost associated with introducing a new scope.

There are no comparable international standards in place. Whilst some providers of card acquiring services will be reporting under the European Union’s (EU’s) Central Electronic System of Payments (CESOP) introduced from 1 January 2024, its scope is tailored for reporting on cross-border payments to close the EU’s VAT gap.

Question 2: Do you support maintaining the scope of Schedule 23 of Finance Act 2011 paragraph 13A for card sales data as HMRC moves towards standing reporting obligations? Are you aware of any unforeseen consequences or missed opportunities?

De minimis reporting and awareness of reporting obligations

De minimis reporting

The government is committed to making things easy for all customers, regardless of which financial institution or card acquiring service they use. Reporting from all in-scope ‘data-holders’ on all ‘relevant data’ is essential for introducing initiatives such as pre-population, where the department requires a complete view of the customer’s circumstances to correctly pre-fill a field within a tax return.

Interest (or card sales in the case of merchant accounts) across several small accounts can add up to a larger amount. For this reason, we do not propose introducing a ‘de minimis’ (meaning where accounts with interest received or card sale payments below a given threshold are excluded from reporting).

Developing a process for in-scope data-holders to be aware of their reporting obligations

Removing the need to issue notices creates several challenges for both HMRC and data suppliers, for instance:

how will the department ensure it is aware of those who should be reporting but currently are not?
how do data-holders who fall in scope for reporting know their obligations if they do not receive a notice?

We are keen to hear your views regarding potential ways of addressing the challenges highlighted above.

This may include how to best work with the relevant representative and regulatory bodies to establish clear communications around the reporting obligations and identify new entrants to the market. We are also aware that other reporting regimes, such as PAYE, find a registration process and ‘nil reporting’ (if there are cases of in scope data-holders with nothing to declare) useful.

Question 3: Should specific types of financial accounts or providers receive special consideration in the reporting of financial account information and card sales data, and why? What is the volume or incidence of these exceptions?

Question 4: Do you have any comparable examples of an effective process which ensures that a) those in scope are aware of their reporting obligations, and b) the relevant department is aware of those who should be reporting?

The case for improving the timeliness of third-party data reporting

Timely third-party data enables tax authorities to build a richer, more accurate, and closer to real-time picture of a customer’s circumstances enabling services to be tailored to individual requirements.

The government agrees with stakeholder feedback to the 2023 ‘Tax Administration and Framework Review: Information and Data’ call for evidence that the optimal timeliness of third-party data reporting depends on the type of data being collected and the purpose for doing so. We have considered the service improvements that can be delivered by more timely financial account information and card sales data (outlined below), concluding that in both cases the government must:

increase the frequency of third-party reporting
reduce the time lag after the end of the reporting period

The government is committed to work with industry to design a proportionate solution that delivers for taxpayers and seeks compatibility with business processes ^{[footnote 3]}.

Improving the timeliness of financial account information reporting

Under current reporting arrangements, there can be a time lag of up to 14 months between the payment of interest by a financial institution and the reporting of the payment to HMRC. This lag (see Figure 1 below) consists of:

up to 11 months due to the annual frequency of reporting
3 months due to the time elapsed from the end of the tax year before the data is provided

Figure 1: Current timeliness of interest reporting (2024 to 2025 tax year)

HMRC must reduce the existing time lag for financial account information to deliver the following service improvements (list is non-exhaustive):

pre-population: for HMRC to successfully introduce pre-population of interest information (including within end-of-year returns for Making Tax Digital for ITSA customers), it must reduce the 3-month delay granted to financial institutions to provide the data – under existing processes, millions of taxpayers have already submitted their ITSA returns by the time interest data is provided to HMRC in June
improved PAYE coding: the department already adjusts PAYE tax codes for BBSI income as part of its annual reconciliation process – timely financial account data will enable tax codes to reflect a more up-to-date position for taxpayers
forecasting: regular, timely, financial account data will enable HMRC to present a more accurate tax forecast for customers in their digital tax account
affordability assessments: the department can use timely financial account data to tailor its approach to collecting tax debts

Increasing the frequency of financial account information reporting

The government has considered several options for the frequency of reporting financial account data, ranging from maintaining annual returns to data being provided ‘on or before payment’ (where the financial institution reporting data to HMRC does so on, or before, it pays (or credits) the amount across to account holders).

Engagement with industry confirms that, where interest payments are made, it is mostly either annual or monthly in nature.

Continuing with annual returns will not enable key improvements to tax administration, such as accurate forecasting or affordability assessments. Whereas monthly reporting, the government’s preferred option (as adopted under planned Digital ISA reforms) offers a balanced alternative for reporting as it:

is sufficiently frequent to deliver most of the benefits of HMRC’s planned uses for financial account data (less frequent reporting, such as quarterly or bimonthly will not realise the same benefit)
avoids placing unnecessary burdens by requiring data more frequently than is necessary (such as weekly)

The government welcomes feedback as to whether ‘on or before payment’ reporting will better integrate with data-holders’ existing business processes than monthly reporting.

Reducing the time lag after the end of the reporting period

The government has considered a range of options for the time lag of reporting financial account data, ranging from maintaining the existing 3 months lag to data being provided ‘on or before payment’ to account holders.

We have discounted maintaining the existing 3-month time lag after the end of the reporting period as it is too long to enable key initiatives, such as pre-population of tax returns. It also far exceeds the time requirement facilitated by data suppliers for other bulk data shares.

The government has also discounted reducing the time lag to a month (or fortnightly) after the reporting period as it is not sufficiently future proof (and therefore risks future costs for data suppliers). Under rules being introduced as part of Making Tax Digital for ITSA, in-scope taxpayers will be required to submit updates quarterly (although they may wish to do so more regularly) and will have a month (and 2 days) after the end of each quarter to submit their updates. The Department is actively considering opportunities for how interest may feed into the quarterly Making Tax Digital process to improve the customer experience (for example by improving the accuracy of presented liability forecasts). In the case of both a monthly or fortnightly time lag, HMRC would receive the financial account data too late for it to quality assure, process, and present the data to taxpayers.

To optimise customer benefits and HMRC efficiencies, data is required as close as practicably possible to the end of reporting period so that it can be exploited in a timely manner. We are interested to understand the extent to which third-party data providers can reduce the time lag (for example, to a week, a few days, 24 hours or ‘on or before payment’) and the implications of doing so.

Question 5: The government’s emerging position is that the frequency of reporting financial account information should be monthly, and that data should be required as close as practicably possible to the end of each month.

What would be the cost of introducing monthly reporting?
Would a frequency more regular than monthly be preferable i.e. because it integrates better with business processes? If yes, what would be preferable between a week, a few days, 24 hours, or ‘on or before payment’, and why? What are the relative costs and benefits?
How soon after the end of each reporting period can data be provided?
Are there specific cases that need to be treated differently, if so, why, and what is the volume or incidence of these exceptions?

Improving the timeliness of reporting card sales (merchant acquirer) data

The department has undertaken a phased approach to collecting card sales data and operates both monthly and annual reporting:

monthly reporting: around two-thirds of data-holders sent a notice have transitioned to supplying data monthly and are given 30 days after the end of each month to provide the data
annual reporting: a second tranche of data-holders (around one-third) are required to provide data annually and are given 60 days after the end of the financial year to comply with the annual notice

HMRC must improve the timeliness of card sales data reporting to deliver the following service improvements (list is non-exhaustive):

tailored feedback (transactional risking): Making Tax Digital customers have up to a month after the end of their reporting period to submit their regular updates for ITSA (at least quarterly) and VAT (at least quarterly or monthly) – by the time that HMRC receives merchant acquirer data, it is already too late to be used for tailored feedback in their Making Tax Digital updates
auto-registration: untimely data will prevent HMRC from taking prompt action to register taxpayers who are unaware of, or deliberately avoiding, their obligation to do so
provide wider customer service improvements, including presenting more accurate tax forecasts to taxpayers in their digital tax account

Increasing the frequency of reporting

The government has explored various options for reporting card sales data, from annual to ‘on or before payment’ by merchant acquirers to vendors. Annual and quarterly reports were dismissed as they do not provide timely data for key services like VAT tailored feedback which requires at least monthly data (as some taxpayers are required to report monthly under Making Tax Digital for VAT). Whilst more frequent reporting than monthly could offer benefits like improved tax liability forecasting, the government is cautious about imposing extra burdens on data-holders.

Monthly reporting is a balanced solution as it:

is already used by most merchant acquirers reporting to HMRC, making it fair and feasible
provides sufficient frequency for service improvements and compliance benefits
avoids unnecessary burdens of more frequent reporting

The government is open to considering more frequent reporting, such as weekly or ‘on or before payment,’ if it aligns better with business processes. However, any changes must be carefully evaluated for feasibility, given the high volume of UK card sales.

Reducing the time lag after the end of the reporting period

The current 30-day time lag after a reporting month (60 days for annual returns) is too long for key service improvements, such as tailored feedback for Making Tax Digital for ITSA. Under Making Tax Digital for ITSA, customers have up to a month (and 2 days) post-quarter to submit updates, and HMRC needs time to assure, process, and present data.

To maximise customer benefits and HMRC efficiency, card sales data should be provided as soon as possible after the reporting period. We are keen to learn how much third-party data providers can shorten the time lag (for example, to a week, a few days, 24 hours, or ‘on or before payment’) and the implications of such changes.

Question 6: The government’s emerging position is that the frequency of reporting card sales (merchant acquirer) data should remain as monthly and be extended to all in-scope data-holders, and that data should be required as close as practicably possible to the end of each month:

Would a frequency more regular than monthly be preferable, for example because it integrates better with business processes? If yes, what would be preferable between a week, a few days, 24 hours, or ‘on or before payment’ (from the merchant acquirer to the vendor), and why? What are the relative costs and benefits?
How soon after the end of each reporting period can data be provided?
Are there specific cases that need to be treated differently, if so, why, and what is the volume or incidence of these exceptions?

Question 6

3.  Collecting the right data – schemas and collection of tax references

Accepted Answer

This chapter outlines options for how the government will:

introduce and implement set ‘schemas’ for third-party data reported to HMRC
modernise the method for sharing data with HMRC
require third-party data suppliers to meet schema requirements by collecting tax references to support improved data matching

The case for introducing and implementing set schemas

A ‘schema’ is a data structure for holding and transmitting data electronically and in bulk. The schema describes the structure and contents of a file and applies a set format and business rules for suppliers to follow to comply with reporting obligations.

Many respondents to the 2023 ‘Tax Administration and Framework Review: Information and Data’ call for evidence expressed support for improving the schemas used for third-party data reporting, with a focus on standardisation.

The current situation for reporting financial account information and card sales (merchant acquirer) data

Financial account information

HMRC currently receives data on financial accounts relating to BBSI and other interest in 2 formats; excel spreadsheets (provided online for suppliers to complete) and flat text files. These formats are outdated technologies for providing bulk data that:

pose a higher security risk for the transmission of information and data, particularly if the number of financial institutions reporting interest income increases in future
lack built-in support for data validation (to ensure data quality)
are not interoperable with HMRC systems in a way that enables the identification of errors at the point of submission

Card sales (merchant acquirers)

Before the 2022 to 2023 tax year, each merchant acquirer used its own schema, leading to processing challenges. In 2022, HMRC introduced a unified XML schema for all UK-based merchant acquirers.

Given this recent transition, the government does not plan to adopt a different schema for card sales data, recognising the resources invested in this improvement and aiming to avoid unnecessary burdens on data suppliers.

Question 7: Regarding the schema for card sales (merchant acquirer) data, do you agree with our conclusion that exploring a different schema at this point is not preferable? If not, are there other schema options (such as internationally recognised schema) that the government should consider?

Adopting a set schema for financial account information

Benefits of a more modern schema

There is a clear case to reform the outdated schemas for BBSI and other interest. In contrast to the drawbacks of outdated technologies currently used for financial account data (outlined above), more modern schemas:

introduce formatting consistency, making it easier to process and handle data
functionality for the data to be validated upfront reducing the volume of (and associated delays and costs caused by) incorrect and incomplete returns
are more easily amendable to correct errors
have record keys which will allow improved identification and communication between third-party suppliers and HMRC

Drawing on international best-practice (CRS schema)

Respondents to previous consultations relating to third-party data expressed support for building on existing reporting formats (such as the CRS schema). Benefits of building on the CRS schema would include:

reducing upfront investment costs for organisations already reporting under CRS
minimising delivery risk by adopting a proven international-best practice schema
realising the benefits of a more modern schema (outlined above), including operating efficiencies that will work to offset transitional costs in the long run

Tailoring the CRS-based solution

Whilst the government recognises the benefits of building on the CRS schema, a simple ‘lift and shift’ may not be desirable. There are some elements which require adaptation for effective financial account information reporting:

‘switching off’ reporting of data fields that are not relevant for phase one of reforms (such as ‘place of birth’, ‘jurisdiction of residence’ and ‘gross dividends’ paid)
adding new data fields that are required under domestic reporting but are not included in the CRS schema, such as tax withheld at source (where applicable)

Exploring the alternative: developing a new schema

As part of our options appraisal, we also explored the merit of developing a new schema. For example, the schema could be XML or JavaScript Object Notation (JSON) based and designed to replicate reporting of all the same information currently acquired via Schedule 23 of Finance Act 2011. Whilst introducing a new schema presents flexibility and the opportunity for innovation, it is likely to be more expensive to implement for all parties and carries additional risks and uncertainty.

Depending on what frequency the data needs to be reported will give an indication as to which type of technology/format may be best to deliver secure and effective exchange and transmission of data.

To streamline processes, we intend to introduce a single schema that covers financial account information (BBSI and other interest).

Question 8: Our preferred option is to tailor the CRS schema. We would be grateful for your views on:

Which key specifications need to be included? How would you tailor the CRS schema to meet domestic reporting requirements?
What the benefits and drawbacks are of combining BBSI and other interest under one schema?
What are the associated costs with adopting a tailored version of the CRS schema? Would an alternative approach be more cost efficient?

Mandating set schemas

The government believes that the agreed set format should be mandatory for all suppliers of financial account and card sales data. Introducing formatting consistency through a set schema is more cost effective than handling and processing multiple formats for a single feed of data. Additionally, there is a point of fairness and consistency with all suppliers as far as possible such is the case with the PAYE regime where small businesses with few employees are required to report (albeit with some exemptions).

The government recognises that institutions reporting lower volumes of data will likely not realise the same scale of efficiencies by moving to a modern schema as larger organisations.

We encourage feedback on how to alleviate burdens. For example, by operating a user interface that enables data suppliers to create an online return and enter the information manually (before converting files to the required XML standard schema) as is in place for CRS reporting.

Question 9: What are your views on how the data, in line with the schema options, should be shared/transmitted from third-party suppliers to HMRC?

Question 10: To help alleviate burdens on data suppliers and to support greater efficiency, what are your views on:

HMRC providing a manual resource like a user interface (compliant with the XML standard schema like the CRS model) for providers supplying small volumes of data?
What easements should be provided if any?
Would you use an Application Programming Interface (API) if they were made available to share information and data with HMRC in this context? Are there other forms of transmitting data that are effective and secure for the transfer of bulk data between systems?

The case for mandating third-party data suppliers to request and report tax references

Data which identify customers (also known as designatory data) is key to the efficient functioning of a modern tax administration system. Such identifiers enable HMRC to match third-party information to taxpayer records for business use.

However, tax references (a key source of designatory data) are regularly not supplied in third-party data returns. This is because Schedule 23 of Finance Act 2011 only requires data-holders to provide data that is within a data-holder’s possession or power. Most businesses do not collect any tax references as it may not be necessary for their operations.

The lack of tax references impacts HMRC’s ability to match third-party data efficiently and with confidence to taxpayer records for business use. Where tax references are not provided, HMRC is reliant on manual matching processes using less reliable designatory data-fields such as ‘Name’, where duplicates exist and reporting can vary significantly (for example, John Smith, Smith, John, J H Smith).

Consequently, HMRC is still unable to match BBSI data to customer records for around one in five bank accounts. Without improving matching capability, we cannot deliver service improvements for customers, such as expanding PAYE coding and introducing pre-population of interest income in ITSA returns. Emerging estimates find that BBSI data matching issues alone cost government low hundreds of millions of pounds per annum in lost revenue.

We have a similar challenge with merchant acquirer data, where even after a manual and resource intensive process is undertaken to match third-party data to taxpayer records, we can currently only match around 75% of the data to any tax head (such as ITSA, Corporation Tax and VAT).

Collecting tax references for improved data matching

To address the data matching issue, many respondents to the 2023 ‘Tax Administration and Framework Review: Information and Data’ call for evidence supported:

introducing mandatory requirements on suppliers to collect and provide HMRC with common designatory data
using an existing identifier, such as a National Insurance number (NINO), over introducing a new ‘unique tax identifier

Although feedback was caveated with caution against changes that could lead to overly burdensome obligations.

In line with recent and planned initiatives, such as RRDP and ISA, the government plans on introducing similar obligations (and safeguards) for suppliers of financial account information and card sales data to request (this information is required in addition to the data that is already mandatory such as name, address):

NINOs from individual customers
for incorporated businesses we expect suppliers of financial account information and card sales to collect the Company Registration Number (CRN)
for businesses and traders earning income via card sales (merchant acquirer) we also expect suppliers to request and obtain (where appropriate) the VAT Registration Number (VRN)

Details are outlined below around the design of collecting this information. Further considerations will need to be given for which identifiers to collect for such as Partnerships, Trusts and Charities and we welcome views from respondents on which identifiers can be collected to support improved matching and tax administration for any of these categories.

Question 11: Which identifiers are appropriate for these types of categories (Partnerships, Trusts and Charities) and do you have views on how they may be collected and supplied by third parties?

Mandating suppliers to request NINOs for individuals (this applies to both financial institutions and merchant acquirers)

Broadly, an individual will have, or is eligible to apply for, a NINO if they are over the age of 16 and:

is planning to (and have the right to) work and have a national insurance liability
is claiming benefits
has applied for a student loan
is paying class 3 voluntary National Insurance contributions

NINOs have historically been used as a reference number for social security benefits and tax credits. HMRC’s records show that approximately 98.8% of all active Self Assessment records contain a NINO.

HMRC analysis finds that comparative matching rates to customer records are much higher for records including a NINO.

Whilst we already receive some NINO information from banks and building societies (around 37% of all accounts reported by financial institutions contain a NINO), this is limited to where it is within a data-holder’s possession or power ^{[footnote 4]}.

The NINO we require to be collected and supplied, is the NINO of the beneficial owner of the account or business.

Although NINOs are commonly used to help identify and support improved matching to taxpayer records, they are sensitive pieces of information. Therefore, third parties are expected to hold, store and transmit the data securely, in line with the General Data Protection Regulations (GDPR), as they do with other sensitive information such as names, dates of birth and addresses.

Collecting NINOs for new accounts

This will mean, as part of the onboarding process for new customers when opening savings accounts, third parties must request the NINO. In the scenario that the individual is eligible, and has one, but cannot provide the information at the point of opening an account, we would expect the third-party should follow up with the customer to obtain the NINO.

The date for which this obligation will take effect can be agreed ahead of time with key stakeholders.

Collecting NINOs for existing accounts

As part of obligations under the CRS, UK financial institutions already collect, where appropriate, the relevant tax identification number on non-UK tax residents and shares this information with HMRC. These obligations include ‘making best efforts’ to acquire the tax identification for existing accounts opened prior to 01 January 2016.

Like CRS, we expect third parties (in scope of this consultation) to make ‘best efforts’ to obtain the NINO for existing accounts. Aligning with existing rules will make it easier for third parties to understand their obligations and discharge them appropriately due to familiarisation.

Best efforts, in this respect, will mean third parties will have to reach out to customers for the first 2 years (once a year) of the new reporting obligations. If after 2 attempts, the third-party is unable to obtain the NINO, the only other time we would expect further attempts is whenever they are updating Know Your Customer (KYC) checks.

Reducing the burden on third parties

The government recognises the importance for people to have access to financial services and we expect that providers should not decline or terminate an account to prospective or existing customers because of not being able to obtain the NINO. This is further clarified in section 4 of the consultation regarding our approach to penalties.

We recognise that there are known limitations of NINOs. For example, a small minority of account holders will not have one, such as those under the age of 16 and recent migrants to the UK. If the third-party is satisfied that the individual is ineligible, we will keep the information provided under review and audit against our records to ensure accuracy. We intend to work with third parties to develop clear guidance on how they can make an informed decision as to whether an individual is eligible or not for a NINO.

Mandating suppliers to request tax references for companies, businesses and traders

For UK incorporated companies we are seeking the CRN. Like NINOs, CRNs are held on HMRC’s systems and can be used effectively for matching purposes. This number is in the public domain; therefore, it carries less risks around storage and disclosure. This obligation will apply to both financial institutions and merchant acquirers.

In addition, to the CRN, we expect merchant acquirers (only) to request the VRN regularly for existing customers (unless already held). We have a digital service online that third parties can use to verify UK based VAT registered businesses (more detail can be found in Chapter 4 of this consultation).

Proposed processes for collecting corporate identifiers (meaning around new and existing accounts) are as outlined for NINOs above.

Question 12: What are your views on the proposed requirement to place obligations on suppliers to request NINOs from individual customers, CRNs from incorporated businesses and VRNs from businesses and traders making sales via card machines (merchant acquirer data)?

Question 13: What are the associated costs on suppliers for collecting the relevant tax references from your customers?

Question 7

4.  Ensuring data quality – due diligence requirements and penalties

Accepted Answer

This chapter outlines how the government will build on existing regulations to ensure third-party data quality is fit for purpose by:

introducing specific due diligence requirements for data suppliers
adopting a modern penalties regime

The case for improving data quality

Without confidence in data quality, HMRC cannot make effective use of third-party data to deliver service improvements. Research shows that pre-populating tax returns with incorrect data leads to worse outcomes for customers.

There is a baseline expectation that financial services providers (in particular banks and building societies) should maintain high quality data on their customers under relevant regulations, including (but not limited to):

undertaking KYC checks to comply with Anti-Money Laundering (AML) regulations – for individuals, this includes requiring a ‘proof of identity’ and ‘proof of address’ for verification and risk assessment as part of setting up an account ^{[footnote 5]}
fulfilling the ‘accuracy’ principle under UK GDPR (for individuals)

Under these regulations, financial services providers are already expected to put in place processes to ensure that customer information is appropriately up to date.

However (despite the wider regulatory environment), information provided to HMRC is often not compliant with reporting obligations due to missing or incorrect data. There are also cases where HMRC would benefit from data which are commonly available, but not always requested from customers by data suppliers, such as NINOs.

Introducing specific due diligence requirements for third-party reporting

Under Schedule 23 of Finance Act 2011, HMRC can issue penalties for inaccurate data where the data-holder has failed to take ‘reasonable care’. HMRC needs data such as employment-related data and interest and investment income to be accurate. One area for improvement where the government does not currently explicitly place any obligations on suppliers to thoroughly check customers’ data is for tax references, such as NINOs.

Consequently, there are many instances where inaccurate tax references are provided, reducing HMRC’s ability to match data to its customers’ records to deliver tailored services. HMRC records show, for example, only 23% of all VRNs supplied by merchant acquirers can be directly matched to taxpayer records.

In response, the government plans to introduce due diligence requirements for third-party reporting in line, where appropriate, with international best practice adopted for recent OECD initiatives. Further information can be found in:

‘Reporting Rules for Digital Platforms (RRDP)’ – Part 2 of The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023
‘Crypto Asset Reporting Framework (CARF)’ – Part 2 of the government’s draft regulations
The International Tax Compliance Regulations 2015 – Due diligence requirements

Under proposed reforms (in addition to existing due diligence requirements, such as under KYC and UK GDPR), data providers will be specifically required to verify the tax identification numbers provided by account holders as set out in Chapter 3. To do so, the financial services providers will be required to use all records available, as well as any publicly available electronic interface, to ascertain the validity of the tax identification numbers. For example:

NINOs: we expect financial services providers to ensure the NINO they are collecting from their customers is in the correct alpha-numeric format and the final character is either A, B, C or D – we are exploring the idea of providing a digital solution to support data suppliers to verify NINOs they collect to make the process of validating data easier
CRNs: financial services providers are expected to verify the CRN (assuming the entity is an incorporated business) using Companies House
VRNs: merchant acquirers will be expected to use the government’s existing digital service to verify whether a business is VAT registered

In line with international standards, the government proposes that financial services providers must keep a record (for a period of 5 years) of the steps taken to meet the due diligence requirements and the information collected while applying the due diligence procedures.

As common practice we plan to work with suppliers to understand, in instances where suppliers provide inaccurate or incomplete data, the reasons why this is the case before taking any action, for example a NINO not supplied or in the wrong format.

Question 14: What are your views on introducing due diligence requirements that align, where appropriate, to those for RRDP and the CARF?

Adopting a modern penalties regime

Existing penalty regime

Part 4 of Schedule 23 of Finance Act 2011 includes a penalties regime and associated safeguards to ensure compliance with the reporting obligations. Data-holders that fail to collect, retain or provide the required information to HMRC can face financial penalties. Fixed penalties are imposed for initial breaches, and daily penalties can apply if the breach continues.

However, HMRC’s internal review of the existing penalties regime finds that it is not a sufficient deterrent for the provision of poor-quality data.

Proposed reforms

As has already been announced with CRS penalty reforms, to ensure the effective implementation of the third-party data reforms, the government intends to improve its penalties regime by aligning, where appropriate, with the modern approach adopted for international bulk third-party data reporting, such as the implementation of the RRDP and draft International Tax Compliance (Amendment) Regulations 2025.

HMRC will continue to monitor the implementation of the penalties regime for RRDP and CRS as the regimes progress, and take onboard feedback to government’s recently announced consultation on penalty reform.

As with RRDP, we propose the following steps to data providers within scope are treated fairly, such as:

a grace period (agreed between HMRC and supplier to help suppliers get things right) for data providers when the new regime comes into effect
the right to appeal a penalty notice
putting in place safeguards to ensure data suppliers are not penalised more than once for the same error

We therefore propose penalties for the following categories:

failure to register: to ensure mandatory registration for financial services providers, including those that do not have reportable accounts
late returns
failure to notify individual reportable persons that the financial services provider has submitted information about them to HMRC
failure to apply due diligence procedures
inaccurate or incomplete reports
failure to comply with record-keeping requirements
failure to provide information

Penalties fall into 2 broad types:

one-off single penalties for reporting incorrect or incomplete information
initial and continuing daily penalties for failing to comply with the collection, verification, reporting and other requirements in the framework

Further safeguards, relating to the categories of non-compliance would be designed to balance HMRC’s need to gather information with the rights and responsibilities of business. These would include:

data protection compliance: businesses would be required to comply with data protection laws when submitting data to HMRC, ensuring that personal data is handled lawfully and fairly
provisions to ensure that businesses are not unfairly penalised for failures to submit data in a timely or accurate manner, provided they can demonstrate a reasonable excuse as defined in Part 4 of Schedule 23 of Finance Act 2011

As is currently standard practice within HMRC for bulk data acquisition, we will work with financial services providers to understand the reasons why returns may be incomplete or incorrect before considering the application of penalties.

We would welcome views on whether the aligning to the penalty approach adopted for international bulk third-party data, including associated safeguards, in Part 3 of the RRDP implementation of the MRDP and draft International Tax Compliance (Amendment) Regulations 2025 are appropriate to ensure compliance in this context.

Question 15: Do you agree that, in principle, penalties relating to bulk third-party data obligations should be consistent with those set out above?

Question 16: If not, is there an alternative penalty structure that would be more appropriate to ensure accurate data, including on tax identification numbers, are collected for customers?

Question 8

5.  Extending reporting to new third-party data sets: dividends and other income from investments

Accepted Answer

This chapter:

outlines the reporting gap between the information which HMRC receives on financial accounts held by UK taxpayers overseas and domestic reporting
seeks to begin a conversation with the financial services industry and other stakeholders on why, and how, HMRC might best go about closing this gap
asks exploratory questions relating to reporting data on specific types of dividends and other investment income

Understanding the reporting gap between domestic and international reporting of financial account information

The government’s March 2024 consultation ‘Cryptoasset Reporting Framework, Common Reporting Standard amendments, and seeking views on extension to domestic reporting’ outlined how HMRC currently has a fuller picture of UK taxpayer financial accounts held offshore than those held in the UK.

The CRS (the standard for international exchange of information under which HMRC receives data on UK taxpayer financial accounts held abroad) goes beyond reporting on financial accounts which pay or credit interest (as per Schedule 23 of Finance Act 2011) and includes other types of financial accounts and data fields reported (as covered in Chapter 3), such as on those which pay dividends. For financial accounts, this discrepancy includes, but is not limited to, additional CRS reporting on:

equity or debt interests in investment entities, such as hedge funds, private equity funds and real estate investment trusts
securities and other investments held in investment or custodian accounts, such as:
- stocks and shares
- financial instruments, such as such as swaps, options and futures.
- exchange traded funds (ETFs)
- mutual funds.
- other collective investment schemes
cash value insurance contracts/annuities

Following stakeholder feedback (outlined in Chapter 2), the government will not be taking forward wholesale extension of CRS reporting domestically so as to require UK reporting entities to include information on UK residents.

Instead, we wish to explore how closing the reporting gap for specific types of financial account, or financial account information, that are within the scope of CRS, but outside the scope or regular statutory returns of current Schedule 23 collections, can deliver benefits for UK taxpayers.

Question 17: What are your views on how the gap between domestic reporting and international obligations under Common Reporting Standard could be closed? Are there any specific types of financial account, or financial account information, that you believe should be included or excluded in future phases of reform? If so, why?

The government recognises that this would increase the amount of information that financial institutions send HMRC about UK residents. We are grateful for the ongoing constructive engagement from the financial services sector and other stakeholders and look forward to working together to discuss what a balanced, proportionate, approach might look like. As a first step of this exercise, this chapter includes exploratory questions relating to reporting of data for specific types of dividends and other investment income.

The case for collecting new data on dividends and other investment income

HMRC does not require regular annual returns from third parties about dividend payments paid to UK resident individuals unless it is for overseas financial accounts reported under CRS (such as those within categories 1 and 2 listed above). Aligning with international best practice for collection of third-party data on dividends and other income from investments could enable HMRC to provide modern services, such as pre-population of dividend income in ITSA returns (as the OECD report Tax Administration 2024 notes, this is already in place for around half of OECD countries).

In 2024 to 2025 the dividend allowance reduced to £500 bringing an estimated 1.2 million additional customers into the tax system. HMRC expects some customers will struggle with their tax obligations due to inexperience.

To improve customer experience, HMRC aims to use third-party data to ensure accurate tax reporting. Instead of customers reporting dividend and other income from investments, third parties could report directly to HMRC, updating customers’ tax records. This could allow HMRC to:

improve and expand PAYE coding out of dividend and other income from investments (or enable moving customers into Simple Assessment) – this has the potential to remove some customers from self-assessment completely, and to remove the requirement for non-self-assessment customers to call HMRC to inform the department of their dividend income
introduce pre-population of specific types of dividend income in ITSA – to modernise the customer offering helping taxpayers get tax right first time
provide wider customer service improvements, including presenting more accurate tax forecasts to taxpayers in their digital tax account, and an improved approach to debt management based on a fuller view of customer circumstances

The government seeks views on the benefits and challenges of extending the approach taken in Chapters 2 to 4 to collect dividend and investment data from third parties like investment platforms and financial institutions using reformed bulk-data powers.

Question 18: What data do you (individuals and their agents) currently use to calculate tax liability on dividends and other investment income? Would it be easier if this data were pre-populated in self-assessment or shown in a PAYE tax coding notice?

Question 19: How straightforward would it be for you (third-party data suppliers) to provide dividend and other investment income data to HMRC that mirrors what is provided in customer annual tax packs and aligns with the tax year end 5 April? What are the main challenges with this approach?

Question 9

6.  Summary of consultation questions

Accepted Answer