Do banks report income to HMRC? It’s a fair question – especially with all the talk about data sharing and digital tax. The short answer: sometimes yes, but not always, and not everything.
As the UK moves towards a digital tax reporting platform, there's a clear shift toward automated income reporting systems. That means more of your financial information could be shared directly with HMRC, especially if you earn interest, trade online, or have overseas accounts.
This guide breaks down what banks tell HMRC, what they don’t, and how the rules are changing. And if paperwork isn’t your thing – don’t stress. RIFT is here to keep things simple.

Traditional banking information sharing

Under current HMRC bank reporting rules, UK banks must report certain types of income – mainly interest earned on savings accounts. If your total interest goes over your Personal Savings Allowance (£1,000 for basic rate taxpayers or £500 for higher rate), HMRC is automatically notified through year-end returns submitted by the bank.

They don’t report every transaction you make, so things like grocery spends or cash transfers between your own accounts aren’t flagged. However, large or unusual payments can raise red flags. If HMRC suspects undeclared income – say, consistent lump sums that don’t match your declared earnings – they can formally request full account details as part of an enquiry.

So while HMRC can’t see everything by default, your bank data is still a key source when something doesn’t add up.

International information exchange frameworks

Through global agreements like the Common Reporting Standard (CRS) and AEOI, over 100 countries share UK residents’ financial data with HMRC – from balances to interest, dividends and investment income.

CRS is an international agreement developed by the OECD. It requires banks and financial institutions to collect and share account information with their local tax authority, which then passes it on to HMRC if the account holder is a UK resident.

If you’ve got overseas income, even if it stays abroad, HMRC likely knows. Make sure it’s declared in your Self Assessment.

HMRC's Connect system

HMRC’s secret weapon isn’t a person – it’s a powerful data-crunching tool called Connect. It’s designed to spot mismatches between what you tell HMRC and what the numbers actually say.

Banking data and HMRC work hand in hand here to identify undeclared income. Connect pulls data from dozens of sources, including banks, online platforms, credit card providers, and even social media.

Banking data feeds into this system when relevant – like reported interest, foreign account information, or data HMRC requests during an enquiry. Connect then cross-checks it all with tax returns, employment records, property purchases and more.

So, if you’ve got income that’s not declared, Connect might already be on the case.

Open Banking and Making Tax Digital

HMRC isn’t just relying on reports from banks anymore, it’s tapping into new tech to make tax more transparent and accurate.

What is Open Banking?

Open Banking lets you share your financial data with trusted apps and services. It’s safe, regulated and used with your consent. For example, you might link your bank account to a budgeting app – or, in future, directly to HMRC.

How it links to Making Tax Digital

Making Tax Digital (MTD) is HMRC’s move towards digital tax records and real-time updates. It’s already live for VAT and expanding to income tax. Open Banking plays a key role here, by potentially allowing:

  • Automated income reporting from bank feeds
  • Smoother tax submissions for sole traders and landlords
  • Fewer mistakes caused by manual entry

What this means for you

  • HMRC can’t force you to share your bank data via Open Banking – but doing so may become part of streamlined digital tax returns.
  • It’s all about consent-based sharing – you stay in control.
  • Expect more automation and less paperwork down the line.

Third-party reporting agreements

It’s not just banks feeding HMRC information anymore. Online marketplaces and platforms are increasingly required to report what their users earn – especially if you’re selling goods or services.

Who’s affected?

HMRC has arrangements with platforms like:

  • eBay
  • Etsy
  • Airbnb
  • Uber
  • Vinted
  • Fiverr

These sites now need to share income data when you meet certain thresholds, such as earning over £1,000 in a tax year from sales or side hustles. That matches the UK’s trading allowance, which lets you earn up to £1,000 tax-free from casual income.

What they report

  • Total income earned
  • Number of transactions
  • Identifying details (name, email, payment account)

This move makes it harder to leave out income from your Self Assessment. Even casual sellers might get flagged if their numbers don’t match up.

So if you’re making cash on the side – even just a few bits on eBay – it’s time to take it seriously.

Digital platform reporting rules

From 2025, the UK is introducing new rules based on the OECD’s Model Reporting Framework. This means digital platforms must report income their users earn, even if it's just a side hustle.

What’s changing?

  • Platforms must collect and share income data with HMRC.
  • This applies to UK-based platforms and international ones operating here.
  • The goal is to catch under-reported or missed income from digital work and sales.

Which platforms are included?

  • Goods-selling sites (eBay, Vinted)
  • Service platforms (Fiverr, TaskRabbit)
  • Rental platforms (Airbnb, Booking.com)

What’s shared?

  • Seller’s full name and address
  • Tax identification details (like your NI number)
  • Total annual income and transactions
  • Fees charged by the platform

Even if you’re not running a full-blown business, this data will now be visible to HMRC. If you’re unsure what counts as taxable income, check out our Self Assessment guide.

What banks don’t report to HMRC

Despite growing data-sharing rules, there are still limits to what banks tell HMRC – and that’s where a lot of confusion creeps in.

Banks don’t automatically report:

  • Your day-to-day spending (like groceries or Netflix)
  • Incoming payments between friends or family
  • Transfers between your own accounts
  • Every transaction in your statement

Banks only report specific income, like interest. Unless HMRC starts an enquiry, your detailed banking activity stays private.

But be careful. Just because something isn’t auto-reported doesn’t mean HMRC can’t find out. If there’s a tax investigation or Connect flags a mismatch, HMRC can legally ask your bank for full records. But this needs to be justified – they can’t just ‘spy’ on everyone’s bank account.
And no, HMRC doesn’t get instant updates every time you get paid in cash or sell something online. But if those payments start adding up, they may come under scrutiny.

HMRC’s information request powers

HMRC can’t see your bank statements on a whim – but they can request specific financial data if they suspect something isn’t right. This is done under the legal framework of Schedule 36 of the Finance Act 2008, which gives them the power to obtain information reasonably required to check a taxpayer’s position.

They’ll typically demand banking records when:

  • You’ve missed filing a return
  • There are unexplained income sources
  • Spending patterns don’t match reported earnings

These powers are often used during a tax investigation, especially when HMRC applies their “follow the money” approach – tracing income and assets through accounts to uncover hidden or undeclared earnings.

As a taxpayer, you still have rights. HMRC must:

  • Clearly explain what data they’re asking for and why
  • Usually notify you before contacting your bank (unless fraud is suspected)
  • Allow you to appeal or challenge a request if it seems excessive or irrelevant

The process can feel intimidating – but you don’t have to face it alone. If you’re under scrutiny, RIFT can support you every step of the way.

Implications for self-employed and small businesses

If you’re self-employed or run a small business, bank reporting rules hit differently. That’s because HMRC expects a clearer separation between your business and personal finances.

What HMRC looks at:

  • Business bank accounts: More likely to be reviewed during tax checks.
  • Personal accounts: Still scrutinised if business income seems hidden there.
  • Unusual deposits: Payments that don’t match your declared work.

HMRC uses all available data, from banks, platforms, and Connect, to check if you’re declaring everything you should. If your turnover or lifestyle doesn’t match your reported income, you may be asked to explain.

What you should do:

  • Use a dedicated business account to keep records clean
  • Log every payment and expense accurately
  • Keep copies of receipts and invoices – HMRC may ask

Digital tools and real-time tax are making this stuff harder to ignore. If it all feels overwhelming, we can help make sense of your tax and keep you compliant.

Future developments in financial reporting

The days of paper records and guesswork are fading fast. HMRC’s long-term goal is a fully digital tax reporting platform in the UK, with real-time access to income and fewer chances for errors or underreporting.

What’s on the horizon?

  • Digital tax accounts that update automatically.
  • Greater use of APIs to link bank data directly to tax software.
  • More international collaboration to track global income.
  • Expansion of platform and bank reporting rules.

In short: full financial visibility is coming. That doesn’t mean Big Brother is watching your every move, but it does mean there’s less room for mistakes or missed income.

Stay informed, stay sorted

So, do banks report income to HMRC? Yes – but only the income they’re legally required to. And while your everyday spending isn’t under surveillance, the systems around you are getting smarter.

What really matters is making sure your tax returns are accurate and complete, whether you’re employed, self-employed, or juggling side gigs online. The good news? You don’t have to do it alone.

At RIFT, we take the stress out of tax. We’ll make sure you’re claiming what you’re owed and staying on the right side of HMRC. Whether you need help with HMRC fines, understanding how HMRC works or just getting started, we’re here to help.