Innovative strategies are being considered to address a significant issue in the UK, as highlighted during a recent discussion in Parliament. Officials from HMRC are exploring the potential of artificial intelligence to combat the exploitation of the tax gap by fraudulent actors within the system.
Tax avoidance involves manipulating regulations to gain a tax advantage. Between 2023 and 2024, the UK Government reportedly lost around £0.7 billion due to tax avoidance practices.
According to HMRC, tax avoidance typically revolves around contrived and artificial transactions aimed at securing tax benefits with no substantial purpose beyond that. It often involves operating within the legal framework but devoid of the intended spirit of the law.
In contrast, tax evasion entails a deliberate effort to evade paying due taxes, constituting a criminal offense. Officials emphasize a strict approach towards individuals engaging in tax evasion, highlighting potential penalties ranging from financial consequences to criminal prosecution and imprisonment.
Reportedly, the UK government faced an estimated loss of £5.5 billion from tax evasion in 2022-23, with the figure rising to approximately £6.5 billion for the following fiscal year. Labour MP Shaun Davies raised inquiries regarding the potential of AI and digital technology in curbing tax evasion and avoidance during a session with Exchequer Secretary Dan Tomlinson.
HMRC’s evolving strategies involve leveraging AI to enhance compliance efforts through improved risk-targeting mechanisms for case investigations and early detection of emerging tax issues. The integration of AI is aimed at streamlining operations, enabling staff to focus more on assisting taxpayers and enhancing the effectiveness of actions against fraud and evasion to bolster public revenue.
While AI plays a supportive role in various processes, human decision-making and oversight remain integral to HMRC’s operations. The organization stresses its commitment to upholding stringent data protection, security standards, and ethical practices in utilizing technological advancements. In cases where AI influences customer outcomes, HMRC ensures transparency and human supervision to maintain accountability and ensure final decisions are made by experienced personnel.
