Innovative strategies are being explored to address a significant issue in the UK. Members of Parliament were informed that HMRC officials are investigating 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. Between 2023 and 2024, the UK Government reportedly lost £0.7 billion due to tax avoidance practices.
HMRC defines tax avoidance as engaging in artificial transactions designed solely to obtain tax advantages. This practice operates within the legal framework but not in alignment with the law’s intended purpose.
In contrast, tax evasion is a deliberate effort to evade paying due taxes, which is illegal. Those found engaging in tax evasion can face severe consequences, including financial penalties, criminal charges, and imprisonment.
According to reports from the Express, the UK government’s losses from tax evasion were £5.5 billion in 2022-23, increasing to approximately £6.5 billion in 2023-24. Shaun Davies, a Labour MP for Telford, inquired about the potential of AI and digital technology to address tax evasion and avoidance during a session with Exchequer Secretary Dan Tomlinson on December 23.
HMRC’s expansion includes utilizing AI to enhance compliance efforts, enabling more targeted investigations and swift action on emerging tax issues.
The integration of artificial intelligence aims to streamline operations, allowing staff to focus more on assisting taxpayers and enhancing efforts against fraud and evasion to bolster public service funding.
While AI supports various processes, human judgment and oversight remain essential. HMRC emphasizes the responsible use of technology, ensuring transparency, data protection, security, and ethical standards are upheld.
In instances where AI may impact customer outcomes, HMRC ensures decisions are explained and overseen by experienced case workers, highlighting the importance of human involvement alongside technological advancements.