HMRC have published the outcome of the consultation, 'Better use of new and improved third-party data'. The reform of HMRC’s bulk-data gathering powers will lead to closer scrutiny of smaller businesses that account for around 60% of the nation's overall tax gap.
Spring Statement 2025 saw the government publish the consultation, Better use of new and improved third-party data, with the aim of making it easier to pay tax correctly the first time.
James Murray MP, Exchequer Secretary to the Treasury, said that making better use of third-party data offered the potential to unlock benefits for the three objectives he had set as strategic priorities for HMRC: improving customer service, closing the tax gap and modernising and reforming the tax system.
Background
The government plans a phased approach to reforming HMRC’s bulk-data gathering powers, starting with key datasets already provided to HMRC:
- Financial account information (such as Bank and Building Society Interest (BBSI)).
- Card sales data.
The argument is that reforming HMRC’s collection of card sales data will help small businesses get their tax right first time, since they accounted for Around 60% of the overall tax gap in 2023-24. HMRC plans to:
- Use improved card sales data to provide tailored feedback to taxpayers via digital nudges.
- Ensure a level playing field between businesses by using card sales data to identify unregistered taxpayers and automatically register them for the relevant tax regimes.
- Use the improved financial account information to enhance PAYE coding out of interest income and introduce pre-population of interest income in Income Tax Self-Assessment (ITSA) returns.
Feedback
Looking at the issues of how HMRC could get the correct data, of the right quality and at the right time to deliver improvements for taxpayers, respondents generally accepted the rationale.
- Respondents cautioned that the benefits to HMRC and taxpayers must be balanced against the cost to data suppliers of providing the data, and data privacy considerations.
- Useful feedback was provided regarding administrative considerations and questions of proportionality, including suggestions for where adapting the proposals may deliver better overall outcomes.
Detailed considerations
Most respondents were supportive of a move towards standing reporting obligations, but cautioned that the complexities of some types of interest-bearing products would make it difficult to comply with new mandatory reporting requirements.
- The government will seek to include a carve-out from some, or all, of the new reporting requirements for some isolated products.
While some respondents recognised the benefit of more timely reporting, many raised concerns around the cost of monthly reporting of financial account information and queried the additional benefits it would deliver.
- The government has listened to stakeholder feedback and will instead take forward quarterly reporting of interest income at this stage to align with initiatives such as Making Tax Digital (MTD).
- HMRC will engage with data suppliers to try and solve the challenges of submitting data less than a month after any reporting period.
- To support a tailored Common Reporting Standard (CRS) schema for financial account information, the government notes the broad support for an XML schema specification and will work with stakeholders to establish the data fields that will be reportable.
While respondents recognised the importance of collecting tax references to maximise HMRC’s ability to match third-party data to customers, they had concerns on:
- Proportionality.
- Cost.
- Operational complexities, particularly on performing outreach to existing account holders.
The government believes that :
- Tax references are a key source of designatory data, ensuring the capability of making key service improvements for customers.
- The government maintains that tax references need to be collected for new and existing accounts.
- Taking respondents' concerns on board:
- To reduce the risk of debanking, financial institutions will not be penalised for being unable to obtain the relevant tax reference from customers where they’ve made ‘reasonable efforts’.
- The government will to work with the industry to develop clear guidance around the obligations.
The majority of stakeholders recognised the importance of due diligence and an effective penalties regime for ensuring high-quality reporting.
- Some stakeholders raised concerns with the verification of taxpayer references, primarily National Insurance Numbers (NINOs), as there is no existing platform to verify them.
- On penalties, respondents expressed that they should be proportionate and paired with a suitable transitional period.
- The government will proceed with the proposed due diligence requirements and penalties, whilst providing clear guidance on expectations and aligning with other tested bulk-data reporting regimes where appropriate.
- HMRC will do further work with stakeholders to understand the challenges and nuances highlighted relating to the potential collection of dividend and investment data from third parties for any future phase of reform.
Penalties
The government will proceed with aligning the new regime 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.
Penalties will be issued 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.
HMRC say they will continue to work with data suppliers and representative bodies, including many of the respondents, to understand the concerns raised during consultation and responses more fully.
Useful guides on this topic
Small businesses account for 60% of missing taxes
HMRC have published 'Measuring Tax Gaps 2025', which says that small businesses failed to pay 40% of the corporation taxes that they owed in 2023-24. Overall, the tax gap estimate (the difference between what tax is expected to be paid and actually paid) was 5.3% for 2023-24.
Tax administration framework: Consultation response
HMRC has published a response to its consultation ‘Simplifying and modernising HMRC's Income Tax services through the tax administration framework’. Several improvements and legislative changes are planned to promote a 'digital by default' approach and improve systems around tax codes.
Making better use of 3rd party information: consultation response
HMRC have published a response to their consultation ‘Making Tax Digital: Transforming the tax system through the better use of information’.
External links
Consultation outcome: Summary of responses
Consultation: Better use of new and improved third-party data to make it easier to pay tax right first time