AI in tax fraud investigations
In August 2025, HMRC confirmed that it uses artificial intelligence (AI) to monitor the social media posts of taxpayers who are suspected of tax fraud. This has sparked a debate about online privacy and the potential for errors. There could also be implications for accountants, who are the primary advisors to businesses and individuals regarding compliance.
HMRC said the technology does not replace “human decision-making” and that it would enable staff to spend less time on admin and more on helping taxpayers. A spokesperson also stated that AI was used in this way only as part of criminal investigations, not for all taxpayers.
That said, HMRC is planning to expand its use of AI into everyday tax processes. The aim is to close the £7bn tax gap by using AI to cross-reference financial data, tax returns and social media posts to flag inconsistencies that may indicate undeclared income.
What does this mean for accountants?
As advisors on tax and compliance, accountants will now need to add a layer of due diligence to their practice. Clients will need to be encouraged to consider not only their traditional financial records, but also their digital footprint. A post about a holiday or costly purchase, for example, could trigger a red flag if their declared income doesn’t appear to support the expenditure.
While accountants may begin to proactively educate their clients on the tax implications of their online presence, the possibility for errors needs to be addressed. Reliance on AI without human management increases the risk of individuals being flagged erroneously, and poses a concern about a scandal like the Horizon Post Office scandal, where the data provided by a computer system was trusted over human verification.
The changing face of tax compliance
HMRC’s privacy policy now guarantees “human involvement” rather than “human judgement”. This distinction implies that while a human may make the final call, the decision will be heavily influenced by patterns identified by an algorithm.
Taxpayers who are trying to remain compliant in the face of frequently changing regulations – alongside the accountants who advise them – will need a keen understanding not just of financial transactions, deductions and reliefs, but also of the ethical considerations and risks of AI-driven decision making.
HMRC’s confirmation of its use of AI in this way may also lead to more self-monitoring when it comes to social media, with individuals and business owners sharing fewer pictures and details about their lifestyle.
Staying compliant
Staying compliant with tax regulations is perhaps more important than ever in light of HMRC’s increased use of AI. Individuals and businesses are encouraged to:
- Maintain accurate financial records, ideally using digital accounting software that is Making Tax Digital (MTD) compliant
- Disclose all income and gains on the relevant tax returns
- Only apply for reliefs and benefits that they are entitled to
- Declare overseas assets, including foreign accounts, property or trusts
- Report cryptoasset transactions
If you need help with filing accurate tax returns or ensuring you’re compliant with the latest regulations, contact a reputable accountant today.
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