Policy paper

Data from Money Service Businesses

Published 5 December 2016

Who is likely to be affected

Money Service Businesses (MSBs) are businesses which provide money transfer, cheque cashing and currency exchange services. Businesses which provide these services and are subject to anti-money laundering regulations will be included in this legislation. Banks which provide these services will not be included, as operational experience has shown that the cash based, transactional business model of most MSBs makes them more vulnerable to exploitation than banks are.

General description of the measure

HM Revenue and Customs (HMRC) is extending its data-gathering powers to MSBs, in order to identify businesses and individuals in the hidden economy. This will be achieved by amending Part 2 of Schedule 23 to Finance Act 2011 to include an MSB as a ‘relevant data holder’ under this legislation.

Under anti-money laundering legislation, MSBs are required under certain circumstances to conduct due diligence checks on customers. The majority are supervised for compliance with these regulations by HMRC. HMRC can request limited information from MSBs under its supervision for anti-money laundering purposes in order to check their compliance with those rules. HMRC can use any information obtained for tax compliance purposes, but can’t request the information with the original intention of checking the tax position of their customers. Extending Schedule 23 to MSBs will allow HMRC to collect certain types of customer data, for tax compliance purposes.

Policy objective

The hidden economy places an unfair burden on the vast majority of people and businesses who pay their fair share of tax. Hidden economic activity also disadvantages compliant businesses. Competition between businesses is distorted when a small minority seek to hide under the radar from their tax obligations.

HMRC is concerned that some MSBs are vulnerable to exploitation by those who misuse services offered by MSBs to hide sources of income from HMRC and operate in the hidden economy.

These measures will enable more effective identification of potential non-compliance, while ensuring a level-playing field for compliant businesses.

Background to the measure

Reflecting trends towards greater use of digital record-keeping by businesses, and the use of electronic transaction methods, the government has introduced a series of targeted extensions of HMRC’s data-gathering powers to include new types of data-holders.

In 2013, HMRC obtained new powers to collect data from merchant acquirers. Building on this, the government introduced legislation this year to require data from providers of electronic stored-value payment services and business intermediaries.

The proposal to extend HMRC’s data gathering powers to MSBs was initially consulted on between 26 August 2016 and 21 October 2016.

Detailed proposal

Operative date

The measure will become operative in late 2017.

Current law

HMRC’s data-gathering powers are set out in Schedule 23 to Finance Act 2011.

Proposed revisions

Legislation will be introduced in Finance Bill 2017 to include MSBs as a new category of ‘relevant data-holder’ under Schedule 23 to Finance Act 2011. Regulations would be made specifying what ‘relevant data’ HMRC may require from MSBs about their customers and those customers’ transactions through the MSB.

Where HMRC identify evidence of potential non-compliance, the data will allow cases to be generated for further investigation, and targeted compliance interventions if necessary.

The extension of HMRC’s data-gathering powers will not alter or replace the existing anti-money laundering supervisory regime, although data collected under this power could be used by HMRC for the purposes of anti-money laundering supervision. The proposed power will not alter or replace any of the obligations of MSBs under anti-money laundering legislation, including the requirement to submit Suspicious Activity Reports where there is suspicion of money laundering or the financing of terrorism. The proposed power would also not require MSBs to check their customers’ tax position, nor identify cases of tax non compliance from their own customer data.

Summary of impacts

Exchequer impact (£m)

2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
-	Nil	+5	+5	+10	+10

These figures are set out in table 2.1 of Autumn Statement 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2016. They solely account for the anticipated impact of an extension of HMRC’s data-gathering powers to cover MSBs.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing also includes a behavioural adjustment to account for individuals becoming more compliant in the future if their tax affairs are reviewed by HMRC.

Impact on individuals, households and families

The measure is not expected to impact on individuals and households, family formation, stability or breakdown.

Equalities impacts

The data requests resulting from the proposal will not be targeted at particular groups or communities which utilise MSB services. HMRC’s data-gathering activities are targeted based on a national picture of risks that takes account of many factors, including operational intelligence, data from other government departments and agencies, and tax return information. These activities generate the intelligence that enables effectively and efficiently targeted national campaigns and specialist task forces, which incorporate intensive bursts of compliance activity aimed at high risk trade sectors and locations across the UK.

There is no reason to suppose that this measure will have a significant or disproportionate impact on groups with legally protected characteristics under the Equality Act 2010.

Impact on business including civil society organisations

This measure is expected to have a negligible direct impact on businesses, and will have a positive indirect impact by lowering competition from non-compliant businesses. Those MSBs which receive a data request notice will experience some one-off costs, including familiarisation with the process and potentially some system changes in order to provide HMRC with information in the required format. On-going costs will include the commitment of staff to compile and send the requested data to HMRC. Schedule 23 allows businesses to appeal against a notice requiring data where the burden is too high, and to prevent this HMRC will work with businesses to ensure they have capability to provide the required data before delivering a notice requiring the data. HMRC will also work with MSBs to agree standard data fields and formats, to minimise the cost of compliance. There is no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC will need to make changes to its IT systems to implement this measure, at an estimated cost of £180,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with affected businesses.

Further advice

If you have any questions about this change, please contact Harry Richardson on Telephone: 03000 592685 or email: harry.richardson@hmrc.gsi.gov.uk.