In the UK, advanced strategies are being considered to address a significant issue. Members of Parliament were informed that HMRC leaders are exploring the potential of utilizing artificial intelligence to combat the tax gap exploited by fraudsters.
Tax avoidance involves manipulating regulations to gain a tax advantage. It is reported that between 2023 and 2024, the UK Government suffered a loss of £0.7 billion due to tax avoidance practices.
HMRC defines tax avoidance as engaging in artificial transactions primarily aimed at securing tax advantages without genuine purpose, operating within the legal framework but against the intended spirit of the law.
Distinct from tax avoidance, tax evasion is described by the government as a deliberate act of not paying owed taxes, which is illegal. The authorities emphasized that those involved in tax evasion will face severe consequences, including financial penalties, criminal charges, and imprisonment.
Recent reports indicate that the UK government’s losses from tax evasion amounted to £5.5 billion in 2022-23, escalating to around £6.5 billion in 2023-24. Labour MP Shaun Davies raised concerns about the potential of AI and digital technology in curbing tax evasion and avoidance during a session with Exchequer Secretary Dan Tomlinson.
HMRC’s approach involves leveraging AI to enhance compliance efforts through targeted risk assessments for investigations and rapid detection of emerging tax issues to prevent their escalation. The integration of artificial intelligence aims to streamline operations, optimize case selection, and improve efficiency in delivering services to customers.
While AI streamlines processes, human oversight remains essential in decision-making to ensure transparency, accountability, and adherence to data protection and ethical standards. HMRC is committed to utilizing technology responsibly, ensuring that AI complements human judgment rather than replacing it entirely.