Innovative strategies are being considered to address a significant issue in the UK. Members of Parliament were informed that HMRC officials are exploring the potential of artificial intelligence to combat the exploitation of the tax gap by fraudulent entities.
Tax avoidance involves manipulating regulations to gain a tax benefit unlawfully. Estimates indicate that the UK Government lost £0.7 billion due to tax avoidance between 2023 and 2024.
HMRC defines tax avoidance as engaging in contrived transactions solely to obtain tax advantages, operating within legal boundaries but against the spirit of the law. On the other hand, tax evasion involves a deliberate effort to evade paying owed taxes, which is illegal and subject to severe penalties, including financial sanctions and imprisonment.
The UK government’s losses from tax evasion were reported at £5.5 billion in 2022-23, escalating to around £6.5 billion in 2023-24. Labour MP Shaun Davies questioned Exchequer Secretary Dan Tomlinson on the potential of AI and digital technology in curbing tax evasion and avoidance strategies. The response highlighted the integration of emerging technologies to enhance compliance efforts, identify cases for investigation, and address tax system issues promptly.
HMRC is leveraging artificial intelligence to provide improved services efficiently, aiding in effective decision-making and targeting actions against fraud and evasion. While AI streamlines processes, human judgment remains crucial, with HMRC emphasizing data protection, security, and ethical standards in technology utilization.
The agency ensures transparency and human oversight in AI applications affecting customer outcomes, reaffirming that final decisions are made by experienced case workers even when AI supports decision-making processes.