Tax meets technology
Artificial Intelligence (AI) is no longer something you hear about in tech news or science fiction. It’s becoming a central part of how public services, including tax, work in the UK. HMRC, the UK’s tax authority, has been quietly using AI for several years to spot fraud, improve accuracy, and increase efficiency. But in recent months, new developments and public decisions have brought this transformation into the spotlight.
While HMRC has long used technology to help manage and collect taxes, the arrival of Generative AI (the kind that can understand, learn, and generate text like a human) has opened new possibilities. From helping taxpayers navigate queries online to automatically checking complex claims, AI is rapidly becoming embedded into the heart of tax processes.
How is HMRC using AI?
One of HMRC’s most powerful tools is a system called Connect, a supercomputer built to analyse vast amounts of data and look for inconsistencies. For example, it can compare a taxpayer’s declared income with their online activity, bank data, property transactions, or even social media posts to flag up possible red flags. If someone is regularly posting pictures of luxury holidays while reporting minimal income, Connect might notice.
More than 90% of HMRC investigations are now triggered by data insights from this system. It allows HMRC to move away from random checks and focus on higher-risk cases. As a result, billions in extra tax has been collected over the past decade. However, this system isn’t a new piece of AI, the Connect System was introduced in 2010 — and HMRC were just getting started.
Latest AI Tools and Services at HMRC
HMRC has been testing and deploying newer AI tools aimed at helping taxpayers directly. For example, AI is being used to:
- Monitor social media activity (only during criminal investigations)
- Automate parts of casework to reduce administrative time for staff
- Trial digital assistants that can answer routine tax questions online
- Improve email and letter communications through personalised support
Although the technology is becoming more advanced, HMRC insists that AI is never making decisions alone — human oversight remains a legal and ethical requirement.
It’s reported that HMRC are also hiring over 5,000 new compliance officers and investing heavily in modernising its systems, including its much-criticised customer service.
Meanwhile, the Government’s Making Tax Digital (MTD) programme, which will be mandatory for many sole traders and landlords from 2026, is helping HMRC gather more data in real time. Combined with AI, this gives HMRC a clearer view of people’s income and expenses and makes it even more important for businesses to keep accurate records.
Recent Developments and Legal Challenges
This year, HMRC’s use of AI made headlines after a UK tax practitioner challenged the department’s secrecy around AI use in handling R&D Tax Credit claims. These tax credits are designed to reward businesses that invest in innovation, but the system has been abused in the past, with almost a quarter of SME claims found to be incorrect or fraudulent.
HMRC initially refused to confirm whether it was using AI models to process or assess these claims, citing concerns about tipping off fraudsters. But after an 18-month legal process, the UK’s First-Tier Tribunal ruled that HMRC must disclose more information and highlight the importance of transparency and trust when using AI in public decision-making.
The ruling underscores a wider issue. While AI can increase efficiency, its use in areas like tax (where people’s finances, privacy, and legal rights are involved) needs to be handled with clear rules and accountability.
What It Means for You or Your Business
For individuals and businesses alike, the growing use of AI in tax brings both opportunities and responsibilities. On the positive side, AI can reduce errors, improve the speed of processing, and lead to better support when done right. It also helps ensure fairness by targeting fraud more precisely.
But it also means that tax returns must be accurate and transparent, especially if you’re in a sector under more scrutiny (such as construction, online trading, property letting, or hospitality). Mistakes or inconsistencies are more likely to be spotted. For those unsure whether they’re fully compliant, now is a good time to seek advice from a qualified tax professional.
The Road Ahead
With over 70% of global tax authorities already using AI in some form, the UK is very much part of a wider trend. Expect to see even more innovation in the coming years. From real-time tax reporting built into business software, to digital advisors that learn and adapt to your specific tax needs. As the technology evolves, the key challenge will be to strike the right balance, using AI to improve services and close the tax gap, without losing public confidence in the process. HMRC is being watched closely by taxpayers, courts, and Parliament to ensure it gets that balance right.
For now, the best step individuals and businesses can take is to stay informed, stay compliant, and be prepared for a more digital, data-driven future of tax.
If you have any queries regarding this article, please contact your usual advisor on 01633 810081 or email info@kilsbywilliams.com
