HMRC is using AI for tax enforcement but is this the right approach?

Instead of simplifying compliance and fostering growth, HMRC seems focused on surveillance. The question is whether the government wants to enable wealth creation or squeeze a shrinking pool of taxpayers.

AI could reduce admin burdens and create a fairer environment for business. Instead, HMRC is using AI to cross-check data from 130 sources such as Companies House, DVLA, Airbnb/Etsy/eBay, airline records, banks, social media, property sales and more. Backed by defence contractor BAE Systems 🤔 this feels less like fairness and more like mass surveillance.

While this may catch some evaders, it disproportionately burdens small and medium-sized enterprises, which make up 99.9% of UK businesses and employ 61% of the workforce. Over 90% of firms already pay correctly, yet SMEs face false positives, vague spam like “one-to-many” letters (1.6m in 2023 alone), and wasted hours defending themselves instead of innovating and selling. Meanwhile, large-scale offshore evasion remains harder to tackle.

The result? A business climate that drives talent abroad. Steven Bartlett recently moved to the US not for lower taxes, but for a better economic environment. If AI were used to streamline compliance instead of intensifying scrutiny, the UK could be a far more attractive place to build wealth and create jobs.

Privacy concerns are a massive issue. The Data Protection Act and GDPR allow “public interest” use of personal data, but without transparency over sources or methods, trust erodes. In a criminal investigation, deep data mining may be justified; for routine tax enforcement, it feels excessive. Add in the UK’s 60,000 pages of complex tax rules, some of the most complicated globally and the risk of errors, resentment, and wasted resources only grows.

The government’s approach to AI will shape the UK’s economic future. Right now, the focus is “AI enforcement” rather than reform. Integrating AI with digital ID systems could expand state control without proper oversight, fuelling fears of account access, overreach and 1984 governance.

Some things that I think would be good going forward for companies and individuals.

1. Keep meticulous records: HMRC’s increased manpower and data mining mean you must access your records quickly and easily as proof in a dispute.
2. Demand accountability: Push for clarity on how HMRC uses AI and data.
3. Advocate for better AI use: Encourage policies that leverage AI to reform the tax system, not just enforce it.

HMRC+AI versus taxpayers is not ethical. Transparency and a “People’s AI” approach could unlock growth, fairness, and innovation. Without change, the UK risks worsening its economic state, stifling entrepreneurship, and deepening distrust.