Artificial intelligence (AI) is undoubtedly a major trend in accountancy and tax, with many firms, business clients and Government agencies recognising its benefits and adopting it.

In particular, AI is being used to automate processes, such as document management and data analysis, with its use consistently expanding to other areas. It now looks set to play a more significant role in tax investigations.

Both major parties have made it clear that tax compliance is a priority, each pledging additional millions for enquiry staff and tools, as well as HMRC customer services.

We’re here to take a look at how AI could be used by HMRC and what this means for you.

How would AI be used?

We should first of all make it clear that HMRC is already using data analysis tools which incorporate elements of AI, in the form of its CONNECT system. Any AI it introduced would likely build on this approach.

There is a concern in the accountancy sector that more sophisticated AI would be used as the sole assessor for tax claims, and those claims that don’t use an exact wording will be rejected.

This doesn’t seem likely. It seems more likely that AI will be used in the same way that other businesses and organisations use it – as an analytical tool and data processor.

For example, HMRC may well use AI to assess tax claims or returns for patterns of data, which could indicate non-compliance.

The goal would be to better target investigations, raising the overall level of non-compliance tackled and more efficiently allocating HMRC’s limited resources.

The idea behind the adopting of AI by HMRC is to reduce the tax gap by targeting wealthy individuals, which may include business owners and investors.

What does that mean for you?

If AI detects a discrepancy, this will almost definitely be checked by an HMRC investigator before any action is taken, as they can pick up on nuance better than any AI systems currently in use.

For those with valid returns or claims, this won’t be a problem – except perhaps for a day or two of panic while the investigator examines your documents.

However, the use of AI by HMRC does place a significant emphasis on the importance of accurate tax returns and tax relief claims, as the vast majority of discrepancies will be flagged by the system.

If your taxes aren’t correct or expenditure or income is missing, AI for pattern recognition is likely to identify it, resulting in an investigation.

The best way to avoid this is to make sure your tax return, alongside any relief claims, is correct and reflects the financial position of your business.

We can help you to achieve this. Contact us today to speak to a member of our expert team.