Consultation. Author: Briony Krikorian-Slade

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1 ================================================================ HMRC: Tackling the hidden economy: Extension of datagathering powers Consultation Response from The UK Cards Association 13 October 2015 ================================================================ Author: Briony Krikorian-Slade

2 The UK Cards Association is the trade body for the card payments industry in the UK, representing financial institutions which act as card issuers and acquirers. Members of the Association account for the vast majority of debit and credit cards issued in the UK - issuing in excess of 56 million credit cards and 95 million debit cards - and cover the whole of the payment card acquiring market. The Association promotes co-operation between industry participants in order to progress non-competitive matters of mutual interest; informs and engages with stakeholders to shape legal and regulatory developments; develops industry best practice; safeguards the integrity of the card payments industry by tackling card fraud; develops industry standards; and co-ordinates other industry-wide initiatives such as those aiming to deliver innovation. As an Association we are committed to delivering a card payments industry that is constantly focused on improved outcomes for the customer. General comments The UK Cards Association [UK Cards] supports the aim of HMRC to narrow the hidden economy tax gap. Card acquirers already have robust processes in place to ensure that businesses that they work with are legally compliant, not least through the international card schemes requirements. 1 Since 2012, UK Cards has been working with HMRC and acquirers to support the provision of acquirer data to HMRC. This includes jointly developing the detailed file specification and guide that acquirers follow to submit the data. Acquirers currently submit data on an annual basis to HMRC and this data has been instrumental in helping HMRC collect the right tax due from firms. UK Cards supports the extension of HMRC s data-gathering powers to all providers facilitating the processing of payments to businesses (including non-banks and institutions that are not currently regulated by the FCA). As well as meeting HMRC s aim of narrowing the tax gap, this should ensure there is an equal regulatory burden across all payment providers. UK Cards also strongly suggests that the UK Government should work across all its departments and agencies to take a long-term view of its requirements from the payments industry. Other initiatives are already underway to generate additional data alongside payments on an automatic basis 2, rather than providing data after the event to government agencies. Payments firms 1 The MasterCard Business Risk and Mitigation (BRAM) Programme, Visa Global Brand Protection Programme (GBPP) and American Express Brand Protection and High Risk Merchant Programmes are all aimed at restricting card payments by merchants whose products or services may pose significant fraud, regulatory or legal risks. 2 For example, the Department for Work and Pensions is working with the payments industry on collecting information on payments made by people to whom they pay benefits to help automate their systems and reduce fraud. 1

3 have a number of external drivers to making technical changes to their systems (including the incoming open API requirements) 3, and it would be helpful to have a Government strategy on its user needs that would ensure any requested changes are consistent and not short-termist. Response to questions 1. Are there other data-holders or business models who should be included within these changes? N/A 2. Do you have any views on how frequently HMRC should request data from these data-holders? Acquirers currently provide data to HMRC on an annual basis but we understand that discussions are underway to move this to a quarterly feed. We see this as a proportionate proposal provided sufficient time is allowed by HMRC for acquirers systems to be updated. Moving to a quarterly feed should provide the frequency of data to allow HMRC to take more timely action to achieve its tax collection objectives, without it being unduly onerous for the data providers to comply. In fact, a more regular use of the Secure Electronic Transfer System (SETS) system for this purpose may be hepful, since the updates needed for this system can be processed more easily if it is used more regularly. 3. Are there any other types of payment providers that should be included in the scope of the legislation? As the consultation paper recognises, businesses are increasingly adopting new payment models for accepting payments. UK Cards supports the extension of HMRC s data-gathering powers to all providers facilitating the processing of payments to businesses (including non-banks and institutions that are not currently regulated by the FCA). As well as meeting HMRC s aim of narrowing the tax gap, this should ensure there is an equal regulatory burden across all payment providers. We support HMRC s presumed objective of receiving as complete a set of transaction data as possible. However, this requires a detailed understanding of the way in which payment providers interact with each other to avoid considerable 3 Payment Services Directive 2 requires firms to make their data available to third parties through Application Programming Interfaces (APIs). HMT is taking forward work with the payments industry on creating an open API standard which firms may be required to implement. 2

4 duplication. We can help HMRC analyse the transaction flows through the various parties involved, thereby enabling HMRC to concentrate on receiving data from those entities having unique data sets for each payment type. For example, in the card payments environment, a distinction can be drawn between a payment facilitator and a payment gateway. A payment facilitator is an entity that has a direct commercial relationship with the end merchant. A payment facilitator will usually aggregate small merchants into a master merchant which then has a relationship with the acquirer. In this scenario, the acquirer does not have a direct relationship with the individual end merchants. Therefore, HMRC should be looking to collect data from payment facilitators for a complete picture. A payment gateway, on the other hand, is an entity that simply provides the interface between the acquirer and the merchant. In this scenario, the acquirer retains a direct relationship with the individual end merchants. We do not think, therefore, that HMRC needs to collect data from payment gateways. There are also a number of European and other regulations that are currently shaping payments terminology in the UK (the Interchange Fee Regulation and Payments Services Directive 2). We therefore suggest that HMRC works with the Payments Systems Regulator and HMT in the first instance on the best terminology to capture the appropriate group of payment providers. We would be happy to participate in further discussions once that, from our perspective, necessary preliminary step has been taken. 4. Do you agree that HMRC should be able to require information from an indirect payment provider? Are the Financial Services (Banking Reform) Act 2013 definitions fit for the purpose of defining data-gathering powers? Yes we agree in principle that HMRC should be able to require information from an indirect payment provider; as noted in our answer to 3 above, further work is required on creating accurate definitions. 5. HMRC would welcome your views on: a. Expanding or better defining the register provisions; or b. Introducing a definition of intermediaries to ensure legislation covers these as data-holders. UK Cards does not have a view on this. 6. How can HMRC minimise any costs to business in complying with these new requirements? 3

5 UK Cards and HMRC jointly developed the detailed file specification and guide that acquirers follow to submit the data. This has been amended over time to include additional HMRC requests. While this was in many ways a trial process, it would be helpful for HMRC to anticipate all future data needs and to include that in the specification for firms to comply with, so that changes do not have be made to processes later on. Above all, early consultation with the industry on HMRC s detailed requirements (once these have been developed as a result of the approach recommended in 3 above) is essential. 7. Do you have any views on the approach HMRC should take to data-holders who may have no or only limited presence in the UK? The majority of UK businesses are acquired for card payments purposes by UK acquirers. However, this picture is changing with overseas acquirers entering the market, facilitated by the growth of the digital economy, and licensing rules/ passporting rules. If the objective is to build a comprehensive view of compliance then these acquirers should also be included in the requirements. An approach similar to that adopted for the MOSS (Mini One Stop Shop) 4 could be used. 8. Do you agree that the existing safeguards are sufficient? As far as we are aware, acquirers have not had concerns with the existing safeguards. However, as a wider range of payment providers is captured by the legislation, additional safeguards may be required to protect against use of information regarding individuals. Payment providers may not be able to easily distinguish between payments to individuals in a personal capacity and payments to businesses (including sole traders). 4 See 4