High-tech strategies are being considered to address a significant issue in the UK. Members of Parliament were informed that HMRC leaders are exploring the potential of artificial intelligence to combat the tax gap exploited by fraudulent activities in the system.
Tax avoidance involves bending regulations to gain a tax advantage. It is estimated that between 2023 and 2024, the UK government missed out on £0.7 billion due to tax avoidance practices.
According to HMRC, tax avoidance typically consists of contrived transactions that serve little purpose other than to gain a tax advantage. Officials describe it as operating within the letter, but not the spirit, of the law.
Tax evasion, on the other hand, involves a deliberate effort to avoid paying due taxes, which is illegal. Those who engage in tax evasion may face severe consequences, including financial penalties, criminal conviction, and imprisonment.
The UK government’s losses from tax evasion were reported to be £5.5 billion in 2022-23, increasing to around £6.5 billion for 2023-24. Shaun Davies, the Labour MP for Telford, questioned Exchequer Secretary Dan Tomlinson on the potential of using AI and digital technology to combat tax evasion and avoidance.
HMRC is expanding its efforts to focus on compliance through new risk-targeting capabilities to identify cases for investigation and improve case selection. The integration of AI helps in identifying emerging issues within the tax system for prompt action to prevent escalation.
The use of artificial intelligence by HMRC aims to enhance efficiency and professionalism in customer service. The technology serves as a tool to improve operational effectiveness, allowing staff to allocate more time to assisting taxpayers and targeting fraud and evasion to increase public service funding.
While AI supports various processes, human decision-making and oversight remain crucial. HMRC emphasizes the safe use of technology, backed by stringent data protection, security protocols, and ethical standards.
In situations where AI could impact customer outcomes, HMRC ensures transparency and human oversight. Even when AI aids decision-making, final decisions are always made by experienced and trained case workers.