Background: The £6.5 billion Tax Gap Initiative
- The UK Government set out plans to boost HMRC’s ability to raise an extra £6.5 billion a year by 2029–30 by closing the tax gap — the difference between the tax owed and the tax actually collected — through improved compliance, modernisation, and enforcement measures. (macfarlanes.com)
- To deliver this, HMRC is receiving significant investment to expand its workforce (including around 5,500 new compliance officers and 2,400 debt management officers) and improve its digital infrastructure. (www.rossmartin.co.uk)
HMRC’s AI Strategy: Key Uses & Capabilities
1. Data-Driven Risk Identification and Compliance Targeting
HMRC is expanding its use of advanced AI analytics and machine learning to improve compliance risk assessment and prioritise cases where tax might be under-paid:
- AI and data analytics will help HMRC analyse vast datasets to identify patterns or inconsistencies in taxpayers’ returns, spending, and financial behaviour that may indicate non-compliance. (AccountingWEB)
- The technology will support predictive risk modelling and case selection, helping compliance teams focus on higher-risk taxpayers, including high-earners and wealthy individuals. (eaca.co.uk)
Comment: This moves beyond traditional rule-based systems to more dynamic risk scoring and anomaly detection, which can spot issues human analysts might miss.
2. Improving Digital Services & Taxpayer Support
HMRC plans to use AI to make everyday interactions with the tax system easier and more efficient:
- Digital assistants and AI chat tools are expected to guide taxpayers through online services, reduce confusion, and help people understand and meet their obligations. (AccountingWEB)
- Internal AI tools will also be used to summarise and streamline casework, speeding up administrative tasks for HMRC staff so they can focus on complex compliance issues. (AccountingWEB)
Impact: This reduces error, improves compliance voluntarily, and enhances productivity within the tax authority.
3. Detection of Fraudulent Documents & Enhanced Identity Checks
Part of the roadmap includes deploying AI-powered systems to spot fraudulent documents and enhance identity verification using techniques such as biometric checks. (higson-accountants.co.uk)
- These tools help prevent fraud and false submissions from entering the system in the first place.
- They also support HMRC’s efforts against sophisticated avoidance schemes and identity fraud.
4. Automation and Streamlined Processing
AI is being built into HMRC’s transformation plans to allow for automated nudges and reminders to taxpayers — especially those at risk of underreporting or late payment:
- AI-driven notifications could alert individuals and businesses when data suggests a return or bill may be due, nudging them to comply. (www.rossmartin.co.uk)
- This preventative approach is designed to reduce the level of non-compliance before enforcement actions are needed.
Broader Digital Modernisation Context
HMRC’s AI plans are part of a wider transformation roadmap that aims to:
- Bring more services online, with a target of 90 % of interactions being digital self-serve by 2030. (PublicTechnology)
- Overhaul legacy IT systems to provide near real-time tax and compliance insights. (wired-gov.net)
- Encourage collaboration with software developers to improve data flows and compliance signalling across the tax system. (AccountingWEB)
Interpretation: AI is a tool within a broader push for digital-first operations, better user experience, and reduced operational friction — all of which contribute to higher compliance and a smaller tax gap.
Case Example / Real-World Application
While HMRC hasn’t fully published all the specific AI tools yet, independent reporting and analyses indicate:
- AI can be used to cross-reference financial data, spending patterns, social media signals, and third-party datasets to highlight risk indicators that trigger deeper compliance checks. (bobsguide.com)
- Existing large-scale systems like HMRC’s Connect platform (which uses predictive analytics and data mining, including machine learning) underpin these capabilities, and future AI enhancements are likely to expand their scope. (Wikipedia)
Comments & Reactions
Supporters of the AI-led approach argue:
AI can boost productivity by automating repetitive work and enabling staff to target high-impact cases.
Dynamic risk modelling and analytics can uncover compliance issues earlier and with fewer resources.
Critics and privacy advocates caution:
There are concerns about transparency and safeguards, especially if algorithms make or heavily inform decisions affecting taxpayers. (Institute for Fiscal Studies)
The precise boundary between automated analysis and decisions requiring human oversight still needs clear definition.
What This Means for the Tax Gap
By combining expanded compliance teams with AI-powered analytics and digital engagement tools, HMRC aims to: Improve detection of non-compliance and evasion
Encourage voluntary compliance through better guidance
Reduce errors and simplify taxpayer interactions
Ultimately help recover billions more in tax revenue toward the £6.5 bn target by 2029-30
Summary
| AI Application | Purpose | Expected Benefit |
|---|---|---|
| Predictive analytics & risk scoring | Identify non-compliance | Better targeting for investigations |
| Digital assistants & automated guidance | Support taxpayers | Reduce errors; improve compliance |
| Document/fraud detection | Validate submissions | Prevent fraud at source |
| Automated nudges & reminders | Encourage timely filing/payment | Reduce late payments & gaps |
Here’s a detailed, case-study and commentary-style summary of how HM Revenue & Customs (HMRC) is planning to use artificial intelligence (AI) and related technologies to help close the UK’s tax gap — including concrete examples of initiatives, pilot projects and reactions to the strategy.
Context: UK Tax Gap and HMRC’s Goals
- The UK’s total tax gap — the difference between the tax that should, in theory, be collected and what is actually collected — was estimated at £46.8 billion for 2023–24 (about 5.3 % of total tax liabilities), underscoring the scale of uncollected revenue HMRC is targeting. (GOV.UK)
- The government has pledged measures to raise billions more in net tax revenue, with modernised compliance, digital services and technology forming a core part of the strategy set out in HMRC’s Transformation Roadmap. (GOV.UK)
Case Study 1 — Tax Gap Innovation Competition (AI & Data Pilots)
Overview:
In late 2025, HMRC announced the finalists of a competition to help close the tax gap by tapping private-sector innovation — a real-world pilot of AI and data-driven techniques. (GOV.UK)
Finalists Selected:
Coefficient Systems Limited
BAE Digital Intelligence
- Both organisations won one-year contracts to develop and test technology prototypes aimed at improving tax compliance and detecting deliberate evasion. (GOV.UK)
What It Tests:
- Advanced data analytics and predictive modelling to spot patterns indicating potential evasion or non-compliance.
- Techniques intended to modernise HMRC’s analytical capabilities and strengthen fraud prevention. (GOV.UK)
Commentary:
This initiative represents a practical application of AI and analytics rather than high-level theory — HMRC is essentially crowdsourcing innovation from tech suppliers to tackle compliance risks in new ways. Such pilots help HMRC assess which techniques actually yield actionable insights or efficiency gains before wider rollout. (GOV.UK)
Case Study 2 — Transformation Roadmap: AI-Enabled Compliance Tools
The HMRC Transformation Roadmap, published as part of government plans to modernise the tax system, specifically outlines how AI will support efforts to close the tax gap. (GOV.UK)
Key AI Use-Cases Identified:
Predictive Risk Targeting
- HMRC will expand risk-targeting capabilities using AI to better identify potential compliance issues — helping to prioritise cases for further investigation and reduce the burden on both taxpayers and HMRC staff. (GOV.UK)
Automated “Nudges” and Digital Support
- AI analytics will underpin automated nudges in digital services to help taxpayers avoid errors and pay the correct amount of tax — for example prompting corrections during online submissions or flagging potential omissions. (GOV.UK)
Fraud & Document Detection
- By 2028, HMRC plans to deploy AI-powered automatic document identification systems to help caseworkers spot potentially fraudulent documentation — using biometric checks and pattern detection to speed compliance work. (GOV.UK)
Generative AI Tools for Internal Efficiency
- AI tools will also be used to assist HMRC staff, such as generating summaries of case information, aiding decision consistency, and reducing administrative workload so officers can focus on complex compliance issues. (GOV.UK)
Commentary:
This roadmap shows HMRC isn’t just looking at post-filing enforcement; it’s aiming to embed AI upstream in the compliance process — from data intake and filing through to targeted interventions. The emphasis is on prevention and early detection rather than correction after the fact. (GOV.UK)
Expert and Stakeholder Reactions
Supportive Views:
Many tax and tech observers welcome the focus on AI for reducing human error, increasing detection of hidden income and enabling better risk prioritisation — potentially shrinking the tax gap more efficiently than traditional methods alone.
The innovation competition and pilot contracts are seen as bridging the gap between bespoke tech innovation and public service delivery. (GOV.UK)
Cautious Notes:
Some advisers and commentators emphasise the need for transparency and safeguards, particularly around the use of AI in decisions that affect taxpayers’ rights and obligations. Ensuring models are explainable and subject to oversight is critical to maintain trust. (icas.com)
What This Means in Practice
| AI Approach | Primary Tax-Gap Objective | Expected Outcome |
|---|---|---|
| Predictive analytics & risk scoring | Detect non-compliance early | More targeted compliance activity |
| Automated nudges in digital services | Reduce errors and omissions | Higher voluntary compliance |
| Document and fraud detection systems | Spot potential fraud faster | Shorter investigation times |
| Pilot tech solutions (e.g., competition) | Test real tools and approaches | Find effective, scalable tech |
Summary
- HMRC’s transformation plan includes wider use of AI and data analytics across tax administration, from digital services through risk targeting and fraud detection. (GOV.UK)
- Practical experimentation, such as the tax gap competition with pilot contracts for analytics vendors, illustrates real-world application of AI tools to find previously unseen patterns of non-compliance. (GOV.UK)
- The emphasis is on improving compliance proactively, enhancing internal efficiency, and integrating modern tech into HMRC’s operations — not simply on reactive enforcement. (GOV.UK)