A high-tech approach is 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 in combatting the exploitation of the tax gap by fraudulent individuals.
Tax avoidance involves manipulating regulations to gain a tax benefit. It is estimated that the UK Government lost £0.7 billion between 2023 and 2024 due to tax avoidance practices.
HMRC defines tax avoidance as engaging in artificial transactions with no real purpose other than tax advantages, operating within the legal framework but not the intended spirit of the law. In contrast, tax evasion is described as a deliberate effort to evade paying owed taxes, which is illegal and subject to severe penalties, including fines 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 in 2023-24. Labour MP Shaun Davies raised queries about utilizing AI and digital technology to combat tax evasion and avoidance during a session with Exchequer Secretary Dan Tomlinson on December 23.
HMRC is expanding its capabilities to target compliance risks more effectively through AI technology, aiding in the identification of tax system issues promptly for timely intervention. The use of artificial intelligence is aimed at enhancing efficiency and professionalism in customer service, enabling staff to focus on assisting taxpayers while improving fraud and evasion detection to boost public revenue.
While AI plays a crucial role in streamlining processes, human decision-making and oversight remain essential. HMRC emphasizes the responsible use of technology, ensuring transparency in decision outcomes and maintaining human supervision in critical decision-making processes.