">

What does AI mean for tax in the UK?

Artificial intelligence (AI) is a hot topic and will inevitably have an impact on the world of tax, but what does this really mean for people preparing their tax returns and for tax professionals?

In order to embrace this evolving technology, I asked Microsoft Copilot to “Write me a blog about how artificial intelligence will affect tax compliance and the work of tax professionals in the UK” – to be fair, it didn’t do a bad job! Although given its possible bias due to its vested interest in people using AI, I thought I should research and write this blog the old-fashioned way. (Which isn’t to say I didn’t use some of Copilot’s ideas …)

The field of AI research was founded at Dartmouth College in 1956. The vision at that time was that a machine as intelligent as a human being would exist in no more than a generation. We aren’t there yet but AI is increasingly being used in our homes, in businesses, and by governments, and it is here to stay. The type of AI that most of us are familiar with is “machine learning”, in which a computer is trained by being given a large amount of data and a set of instructions. More recently, the launch of programs like ChatGPT, powered by generative AI, have brought AI into the public consciousness.

Use AI with caution

Whilst AI is no doubt impressive, it should be used with caution, and comes with concerns about bias, privacy, transparency and simply “making things up” (or “hallucinating”). What is important to remember is that AI does not know what it is doing, it is just following rules and instructions. It does not have the ability to step back and sense check its answers. As some might say, rubbish in will give rubbish out.

There are examples of AI using Reddit and Facebook posts as sources, and even making up tax cases which one unfortunate taxpayer actually used in her defence at the First-tier Tribunal.

AI and tax

In the tax world, authorities are using AI to analyse and scrutinise the huge amounts of data that they acquire from taxpayers and intermediaries.

Following an experiment in France using AI in 2022, more than 20,000 undeclared private swimming pools were discovered, providing an unexpected windfall of £8.5m for French tax authorities.

Now, more than ever, the wise taxpayer should assume that HMRC knows pretty much everything that they are doing, and act accordingly.

Many tax and finance firms have already started to use AI. There is no doubt that AI could help with tax adviser’s workloads, through increasing automation and augmentation of human processes. It could be particularly effective when dealing with large data sets, for example transactions in online marketplaces.

AI may also play a part in changing the way that taxes are designed. Through analysing data, it could be used to make targeted policy measures more effective and allow better management of the economy. It could also help improve administration of the tax system, which should help to improve efficiency and effectiveness.

Is AI a threat or an opportunity?

Some experts predict that AI is set to affect nearly 40% of all jobs. There is little doubt that the days of paying an hourly rate for someone to perform data entry will soon be behind us.

However, it is hard to imagine a tax system where human intervention will not be required. Machine learning will always have errors, and human users will be needed to spot these mistakes and carry out the “sense check” mentioned above.

It may be that the use of AI by tax authorities could actually increase the workload of tax professionals due to the authorities’ access to large data sets.

There is little doubt that AI is going to transform the tax world, and will change the roles of tax professionals. As AI continues to evolve, it will be essential for tax professionals to stay informed and embrace these changes to remain effective in their roles.