Tag: HMRC

Featured Article : HMRC Deploys British AI To Hunt Tax Fraud

Posted on by Paul Stradling

HMRC is handing a British AI company £175 million to help it spot tax fraud, uncover hidden financial networks, reduce costly mistakes, and improve customer service, as pressure mounts over rising complaints, growing complexity, and a £46.8 billion tax gap.

Deal With Quantexa

The decade-long deal with London-based AI and analytics firm Quantexa marks one of the largest AI deployments ever seen inside the UK public sector. It also signals a major strategic change in how the government wants critical public systems to use artificial intelligence.

Rather than relying on a US technology giant, HMRC is betting heavily on a British-developed “Decision Intelligence” platform designed to connect fragmented data, identify suspicious patterns, and support human investigators and customer service teams.

Why HMRC Wants AI Help

HMRC has been under mounting criticism for years over long waits, processing delays, incorrect tax notices, and declining service standards.

According to figures obtained through Freedom of Information requests by the Contentious Tax Group, complaints against HMRC climbed to more than 93,000 in 2024/25, up sharply from around 70,000 five years earlier.

Also, compensation payments linked to HMRC errors and distress have also risen significantly.

At the same time, the tax authority is handling growing volumes of digital data as initiatives like Making Tax Digital expand across the UK economy.

It seems the problem for HMRC is not a lack of information, but that the information often sits in disconnected systems that can’t easily “see” relationships between people, companies, transactions, and behaviours.

Quantexa specialises in connecting fragmented datasets and using graph analytics and machine learning to identify patterns, relationships, and anomalies that would be extremely difficult for human investigators to spot manually across millions of disconnected records and transactions.

Its technology was originally developed for anti-money laundering work inside banks. Customers already include HSBC and Vodafone.

Now HMRC wants to apply similar techniques to tax compliance, fraud detection, and operational efficiency.

Connecting The Dots

One of the most significant parts of the project involves what Quantexa calls “entity resolution”. In simple terms, the system attempts to identify when multiple records, companies, transactions, or identities may actually be connected.

That matters because complex fraud networks often hide behind layers of shell companies, false references, mismatched addresses, or disconnected records spread across multiple databases.

The technology is designed to create what Quantexa describes as “a clearer, connected view of its data to improve performance, help identify tax at risk, and strengthen control.”

Positive Points

One positive point about the new system is that it should be able to help HMRC track legitimate payments that have been incorrectly referenced, which could potentially reduce some of the administrative headaches faced by businesses and taxpayers.

Also, importantly, Quantexa says the platform is not intended to replace human decision-making. As Quantexa CEO Vishal Marria says: “In government environments, AI cannot operate as a black box,” and that “Decisions need to be transparent, auditable, and explainable, particularly in areas affecting citizens directly.”

In fact, this point matters politically as much as technically. For example, governments worldwide are increasingly nervous about allowing opaque AI systems to make decisions affecting taxes, benefits, healthcare, or policing without clear accountability.

The Digital Sovereignty Angle

There is another layer to this story that goes well beyond tax collection. The Quantexa deal is being viewed inside government as part of a wider push towards so-called “digital sovereignty”.

In recent years, the UK government has awarded huge contracts to American data firms including Palantir Technologies, the US data analytics company co-founded by billionaire Peter Thiel, whose NHS data platform deal generated considerable political controversy.

This time, ministers appear keen to emphasise that the supplier is British, the systems are governed, and the data stays under HMRC control.

Also, Quantexa’s online announcement about the deal with HMRC strongly emphasised sovereignty and governance concerns, with Quantexa highlighting how “Public sector organisations are accelerating digital transformation while needing to maintain sovereignty, auditability and control.”

It added that the platform creates “a trusted, governed foundation for advanced analytics and the safe deployment of AI at scale.”

The language used around the project is deliberate because governments are no longer debating simply whether AI can improve public services, they are increasingly focused on who controls the systems, where sensitive national data is stored, and whether automated decisions can be properly explained, audited, and challenged when citizens are affected.

A Major Test For Government AI

The contract could become a defining test case for how AI is used across British government departments. If successful, similar approaches could spread rapidly into compliance, policing, border control, welfare systems, and other high-data public services.

However, the pressure to deliver will be intense because HMRC’s tax gap currently stands at £46.8 billion, representing money theoretically owed but not collected, and the government is clearly placing significant faith in AI and Quantexa’s ability to help recover far more of it. Quantexa founder and CEO Vishal Marria says governments worldwide are struggling with “how to turn complex, fragmented data into confident, timely decisions”, which goes directly to the heart of HMRC’s long-running problems with disconnected systems, slow processes, and rising operational complexity. The company believes that by “creating context from data and embedding trusted, governed AI”, HMRC will be able to make “confident, informed decisions” more quickly, while improving fraud detection, strengthening oversight, and reducing the kinds of administrative errors that have increasingly damaged public confidence in the tax authority.

What Does This Mean For Your Business?

For businesses, accountants, and taxpayers, this signals a future where HMRC becomes far more data-driven, interconnected, and AI-assisted. That could mean faster identification of fraud and errors, quicker handling of customer queries, and improved detection of suspicious tax activity.

It could also mean increased scrutiny. As AI systems become better at linking records and spotting inconsistencies across datasets, businesses may find it harder to hide mistakes, discrepancies, or unusual financial behaviour inside disconnected systems.

At the same time, the project highlights something much bigger happening across the UK economy. Artificial intelligence is rapidly moving beyond chatbots and productivity tools into core national infrastructure, including taxation, compliance, and public administration.

It now seems that businesses that maintain accurate records, consistent reporting, and well-organised financial systems are likely to face far fewer problems in an environment where AI is increasingly being used to connect data, identify anomalies, and scrutinise tax activity far more efficiently than before.

Featured Article : HMRC Wants UK Crypto Buyers’ Details

Posted on by Paul Stradling

People using cryptocurrency services in the UK are now required to provide personal and tax identifying details to cryptoasset platforms, following new reporting rules that came into force on 1 January 2026.

What Are The Rules?

From the start of 2026, anyone buying, selling, transferring, or exchanging cryptoassets through a cryptoasset service provider must provide specific identifying information, or risk penalties. The change forms part of the UK’s implementation of the Cryptoasset Reporting Framework, commonly known as CARF, an international standard developed to improve tax transparency around cryptoassets.

Will Link Crypto Activities To Tax Record

According to guidance published by HM Revenue & Customs, the information collected by crypto platforms is to be used to link a person’s crypto activity to their tax record. HMRC says this “makes it easier for us to find out what tax you need to pay”, emphasising that the measure is designed to support enforcement of existing tax rules rather than introduce a new form of crypto taxation.

Applies Whether The Crypto Service Is In The UK Or Not

HMRC says the reporting obligation applies regardless of whether the cryptoasset service provider is based in the UK or overseas. For example, as HMRC’s guidance states on its website, users must provide the required information “to every cryptoasset service provider you use, even if they’re not based in the UK”.

What Information Is Needed?

The details required depend on whether the user is an individual or an organisation. For example, individual users must provide their full name, date of birth, and the address and country where they normally live. They must also supply a tax identification number. For UK residents, this will usually be a National Insurance number or a Unique Taxpayer Reference.

Where a person is not eligible for a tax identification number, for example because their country of residence does not issue one, HMRC says it is not required.

Entity users, such as companies, partnerships, trusts, or charities, must provide their legal business name, main business address, and company registration number if they are a UK company. Non-UK entities must provide a tax identification number and the country that issued it. Some entities are also required to provide details of their controlling person.

Incorrect Details Could Result In A Fine

HMRC is making it clear that users must provide accurate information. It says that giving incorrect details, or failing to provide them at all to a UK cryptoasset service provider, can lead to a penalty of up to £300. Where a non-UK provider is involved, the penalty could be higher.

How Penalties And Tax Enforcement Fit Together

The £300 penalty relates specifically to failures to provide accurate identifying information to cryptoasset service providers. It sits alongside, rather than replaces, HMRC’s existing powers to penalise unpaid tax.

HMRC’s guidance warns that if someone has not paid tax they owe on cryptoassets and the tax authority later identifies this, penalties can be far more significant. For example, in such cases, HMRC says penalties can be “up to 100 per cent of the tax due plus interest”. For offshore matters or offshore transfers, penalties can be higher still.

Voluntary Disclosure Facility (For Previous Years) Available

The department is also operating a disclosure facility for people who have underpaid tax on cryptoassets in earlier years, which allows individuals to correct their tax affairs voluntarily for undeclared gains or unpaid tax prior to April 2024.

Why The Focus On Crypto For Tax Authorities?

Cryptoassets have long posed challenges for tax authorities because of their decentralised and cross-border nature. For example, transactions can take place across multiple platforms, wallets, and jurisdictions, often without the kind of centralised reporting that applies to traditional bank accounts.

CARF

Government policy documents describe cryptoassets as a rapidly expanding area where tax authorities have historically had limited visibility. The Cryptoasset Reporting Framework (CARF) was, therefore, developed to address gaps that remained even after the introduction of the Common Reporting Standard. In simple terms, CARF is designed to prevent people from avoiding tax reporting by shifting assets into crypto. It creates a framework under which cryptoasset service providers collect standardised information about users and their transactions, which can then be shared automatically between tax authorities in participating countries.

How International Data Sharing Will Work

CARF is a multinational framework, meaning its impact goes beyond the UK alone. For example, where a UK resident uses a UK cryptoasset service provider, HMRC will use the reported information to link crypto activity to the individual’s UK tax record. Where a UK resident uses a non-UK provider based in a country that has also implemented CARF, the tax authority in that country will share the information with HMRC.

Similarly, if a non-UK resident uses a UK cryptoasset service provider, HMRC will share the relevant information with the tax authority in the user’s country of residence, provided that country also follows the CARF rules.

The UK government has said that the first international exchanges of data under CARF are expected to take place from 2027, reflecting the time required for jurisdictions and businesses to build reporting systems.

How Crypto Is Taxed In The UK

The new reporting rules do not change how cryptoassets are taxed, but they are expected to make enforcement more effective.

In the UK, cryptoassets are generally subject to Capital Gains Tax when they are disposed of. Disposal can include selling crypto for traditional currency, exchanging one cryptoasset for another, spending crypto on goods or services, or gifting it to someone other than a spouse, civil partner, or charity.

If total gains across all disposals exceed the annual Capital Gains Tax allowance, the gains must be reported to HMRC and tax paid. Losses can be offset against gains, and in some cases carried forward to future tax years.

Where cryptoassets are received through employment, mining, or other income-generating activities, Income Tax and National Insurance contributions may also apply.

With this in mind, HMRC has now updated its Self Assessment tax return to include a dedicated section for cryptoassets, reflecting the growing expectation that taxpayers accurately report crypto-related income and gains.

How Widespread Is Crypto Use In The UK?

The changes come at a time when crypto awareness and usage remain significant in the UK. For example, research published by the Financial Conduct Authority shows that public awareness of cryptoassets remains high. Its most recent consumer research found that more than 90 per cent of adults had heard of cryptoassets, while around 8 per cent of respondents reported owning or using them.

The same research indicates that most users rely on centralised exchanges as their main way of accessing crypto, rather than decentralised protocols or peer-to-peer transactions. This is significant because CARF reporting obligations apply primarily to cryptoasset service providers that act as intermediaries.

For many consumers, the impact of the new rules is likely to be experienced through additional identity checks, requests to confirm tax residency, and prompts to supply or update tax identification details.

What The Rules Mean For Crypto Businesses

The change in the rules essentially sees the burden of compliance falling heavily on cryptoasset service providers, which must collect, verify, and report user information and transaction data.

Government impact assessments suggest that businesses already preparing for international CARF obligations may face relatively modest additional costs to extend reporting to UK resident users. Even so, firms may need to update systems, data validation processes, and reporting workflows to ensure information is accurate and submitted in the required format.

Around 50 UK businesses are estimated to be affected by the domestic reporting extension, though overseas platforms serving UK users are also brought into scope where their home jurisdictions implement CARF.

For example, a crypto exchange that already collects customer data for anti-money laundering purposes may still need to restructure how that data is stored and reported so it aligns with CARF requirements around tax residency and transaction reporting.

The Wider Regulatory Context

The introduction of CARF reporting coincides with broader efforts to regulate the UK crypto sector, although those initiatives are progressing on a separate track. The Financial Conduct Authority is currently consulting on proposals for a comprehensive regulatory regime for cryptoassets, covering areas such as exchange standards, conduct requirements, and crypto lending and borrowing. The consultation is due to close in February 2026.

The FCA has been clear that its goal is not to eliminate risk from crypto markets, but to ensure consumers understand those risks and that firms operate to clear standards. David Geale, the FCA’s executive director for payments and digital finance, has said regulation is coming and that the authority wants a regime that “protects consumers, supports innovation and promotes trust”.

For UK crypto users and businesses, the key distinction is that CARF focuses on tax transparency and data sharing, while the FCA’s work addresses how crypto markets operate and how consumers are protected within them.

Challenges and Criticisms

While HMRC says the new reporting framework is about enforcing existing tax law, the changes have prompted some concerns from parts of the crypto industry and from privacy advocates.

For example, one criticism centres on data protection and security. The rules require cryptoasset service providers to collect and store sensitive personal and tax information, sometimes across multiple jurisdictions. Critics argue this increases the risk of data breaches, particularly where smaller or overseas platforms may not have the same security standards as large UK financial institutions.

There are also questions about proportionality. For example, some industry voices argue the rules apply broadly to all users, including those with relatively small holdings or minimal trading activity, potentially increasing compliance friction for people who do not owe any tax. The requirement to provide tax identifiers to every platform used, even where no taxable gain has been realised, has been cited as a source of unnecessary complexity.

From a business perspective, crypto platforms face operational and cost pressures. Although many already collect customer information for anti-money laundering purposes, aligning systems with CARF reporting standards adds technical and administrative overhead, particularly for firms operating across multiple countries with different implementation timelines.

Others point out that CARF does not fully address decentralised finance. Transactions carried out directly on decentralised protocols, without an intermediary acting as a service provider, may remain harder for tax authorities to observe, raising questions about how evenly the rules will apply across the crypto ecosystem.

HMRC has acknowledged that regulation cannot eliminate all non-compliance, but maintains that broader data collection and international information sharing will significantly narrow the gaps that have historically made cryptoassets difficult to tax.

What Does This Mean For Your Business?

The new reporting rules mark a clear change in how crypto activity is treated by the UK tax system, moving it closer to the level of visibility long associated with traditional financial accounts. For individual users, the message is pretty straightforward. Crypto transactions are no longer operating in a grey area, and HMRC now expects crypto activity to be linked clearly and consistently to a person’s tax record, regardless of where the platform they use is based.

For UK businesses operating in the crypto sector, the changes reinforce the idea that compliance and data governance are now central operational requirements rather than secondary considerations. Firms offering exchange, wallet, or portfolio services are being drawn more firmly into the UK’s tax reporting infrastructure, with real implications for system design, data accuracy, and cross-border coordination. Even businesses that already meet anti-money laundering standards may need to rethink how customer data is structured, verified, and reported over time.

More broadly, the rules reflect a wider change in how governments, regulators, and tax authorities view cryptoassets. For example, what was once treated as a niche or experimental asset class is now being integrated into mainstream regulatory frameworks, with greater expectations placed on platforms, investors, and advisers alike. While concerns remain around privacy, proportionality, and coverage of decentralised activity, HMRC’s position is clear that increased transparency is necessary to close long-standing enforcement gaps.

As CARF data sharing begins to scale internationally from 2027, the practical impact of these rules is likely to become more visible across markets. For users, businesses, and regulators, things are clearly moving towards a tighter alignment between crypto activity and existing tax and compliance systems, with fewer opportunities for crypto to sit outside the scope of routine financial oversight.

Featured Article : HMRC’s AI Scans (Tax-Cheats) Social Media

Posted on by Paul Stradling

HM Revenue & Customs has confirmed it is using artificial intelligence (AI) to monitor the social media accounts of suspected tax cheats, in what it says is a targeted approach aimed at tackling fraud and reducing the UK’s tax gap.

Using Algorithms

The disclosure came after recent reports in The Telegraph revealed HMRC was using algorithms to flag suspicious activity online. In response, the tax authority confirmed that AI is already playing a role in its investigative work. Officials stressed the technology is only used in criminal investigations and is not applied to the everyday taxpayer. In a statement, HMRC said AI is being deployed to help staff spot inconsistencies between declared income and publicly available social media posts, while also cutting down the amount of time spent on manual administration.

Spend Less Time on Admin

“Greater use of AI will enable our staff to spend less time on admin and more time helping taxpayers, as well as better target fraud and evasion to bring in more money for public services,” HMRC said in a statement. Officials added that the approach does not replace human decision-making, pointing to what they describe as “robust safeguards and legal oversight” around the process.

Why AI Is Being Deployed

The move reflects HMRC’s broader challenge of narrowing the UK’s tax gap, which in 2022–23 was estimated at £51 billion, or about 4.8 per cent of total theoretical tax liabilities. Of this, around £5.5 billion was attributed to tax evasion. Reducing this shortfall has become a priority for the government, which has promised that more efficient enforcement will increase revenues without raising taxes on working households.

By applying AI tools to tasks previously carried out manually, HMRC, therefore hopes to process large volumes of open-source data more quickly and accurately. Social media platforms such as Instagram, Facebook and TikTok are seen as sources of information because they often show details of people’s lifestyles that may not align with their declared income.

For example, cases have previously been reported where individuals claiming benefits on grounds of ill health were found posting publicly about participation in marathons, or where people declaring modest incomes shared photos of luxury cars and holidays. Until now, gathering such evidence relied heavily on human monitoring. AI allows patterns, anomalies and potential red flags to be detected across thousands of accounts in a fraction of the time.

Integration with Existing Systems

It’s hoped that this latest use of AI will complement HMRC’s wider analytical infrastructure, particularly its “Connect” system, introduced more than a decade ago. Connect draws together information from tax returns, banks, property records and other government databases to flag discrepancies between declared income and observed financial behaviour. Adding automated social media analysis into that mix gives investigators another channel through which to identify possible fraud.

Also To Provide Guidance To Taxpayers

It should be noted that the department has also been exploring AI for broader and less sinister purposes, such as helping taxpayers navigate the more than 100,000 pages of guidance on its website, and summarising customer service calls for advisers. However, it’s the use of social media monitoring that has generated the most public debate, not least because of its implications for privacy, accuracy and accountability.

Efficiency Gains and Cost-Cutting For HMRC

For HMRC itself, the adoption of AI in investigations is positioned as an efficiency gain rather than a cost-cutting measure. The government has already announced plans to recruit 5,500 new compliance staff, suggesting the technology will be used to augment rather than replace human expertise.

Tax specialists have noted that AI could help HMRC by pulling together information from multiple sources far more efficiently than manual checks. At the same time, they warn of potential pitfalls, including the risk of mistaken identity if the technology fails to distinguish between genuine accounts and those that are fake or hacked. Such concerns underline the importance of retaining human oversight in any decision-making process.

Focusing

From HMRC’s perspective, the argument is that automation allows investigators to focus their time where it is most valuable, i.e. complex cases that require judgment, rather than sifting through data for initial leads. The department also points to the potential to secure better returns on public spending, with AI-enabled enforcement expected to bring in billions of pounds in additional tax revenues over the coming years.

The Implications for Taxpayers

For law-abiding taxpayers, HMRC has been keen to stress that there is little to fear from AI social media monitoring. Officials say the tools are not used in routine tax collection or compliance checks, but only in serious criminal cases where there is already suspicion of wrongdoing.

The wider deployment of AI across HMRC’s operations could, in time, make interactions with the tax system simpler for the majority. For example, tools that help people understand complex rules, avoid errors in returns and access relevant guidance more quickly could reduce unintentional mistakes. Tax specialists point out that significant amounts of revenue are often lost through basic errors, and AI has the potential to reduce this by offering clearer digital assistance and more reliable support to taxpayers.

Surveillance Fears

At the same time, it has to be said that the disclosure that HMRC is scouring social media using AI may add to public concerns about surveillance and government access to personal data. Although the posts in question are publicly visible, many people may not anticipate that their online activity could form part of a criminal tax investigation.

Challenges

Not surprisingly, the announcement has not gone unchallenged. Privacy advocates and some parliamentarians have warned that reliance on AI risks producing false positives, where innocent individuals are wrongly flagged as suspicious. Concerns have also been raised that the system could amplify errors if it fails to distinguish between genuine accounts and those that are hacked, fake or misleading. Civil liberties group Big Brother Watch has previously cautioned that the spread of AI-driven surveillance represents a “frightening expansion” of state monitoring, and argued that without strict legal safeguards such tools risk undermining privacy and fairness in the justice system.

There is also a wider political backdrop. The UK government is under pressure over its broader AI strategy, with reports earlier this year suggesting the national AI institute faced internal turmoil and potential funding withdrawals. Against that context, the use of AI by HMRC has become part of a larger debate about how far public authorities should adopt emerging technologies, and how safeguards should be applied.

Some commentators have also drawn parallels with the Horizon IT scandal at the Post Office, in which faulty computer evidence led to wrongful prosecutions of sub-postmasters. Although HMRC emphasises that human decision-making remains central to its process, critics argue that overreliance on automated systems without adequate checks could carry significant risks.

The tax authority insists that its approach has been developed with those lessons in mind. AI is used to highlight possible leads, but human investigators must review the evidence before any action is taken. Officials have also stressed that all use of AI in this area is subject to legal oversight, ensuring compliance with UK data protection and criminal justice laws.

Wider International Context

It should be noted, however, that the UK is not alone in deploying AI to tackle tax evasion as other countries have already been using similar methods. HMRC has been sending so-called “nudge letters” to taxpayers after analysing international financial data shared under the OECD’s Common Reporting Standard, which tracks overseas income. This AI-assisted approach has contributed to a reported 22 per cent rise in admissions of foreign tax evasion in recent years.

The logic appears to be that as more financial data becomes digitised and globally shared, AI will become a necessary tool for connecting the dots. For HMRC, adding social media monitoring into that picture is seen as the next step in keeping pace with increasingly complex forms of tax fraud.

What Does This Mean For Your Business?

The real test will be whether HMRC can strike the balance between efficiency and fairness. The technology may promise to sharpen investigations, close the tax gap and support a more resilient tax base, but it also raises unresolved questions about how far government agencies should be able to probe into people’s digital lives. For taxpayers, reassurance that AI will not be used in routine compliance checks will be welcome, but concerns about transparency and proportionality are unlikely to fade quickly.

For UK businesses, the implications may be twofold. For example, firms could benefit from a more level playing field if AI enables HMRC to clamp down more effectively on undeclared income and fraudulent competition. However, there is a risk that legitimate companies could face greater scrutiny or reputational harm if mistakes occur in the interpretation of online data. The safeguards HMRC has promised will, therefore, be critical in maintaining trust.

Other stakeholders, from policymakers to civil liberties groups, will, no doubt, be watching closely. The government has positioned AI as a tool for improving public services and raising revenue without additional tax rises, yet its wider strategy for regulating AI remains unsettled. With memories of past technology failures still fresh, the rollout of these systems within HMRC will be an early indicator of how the state intends to manage the trade-offs between innovation, privacy and accountability in the years ahead.

Security Stop-Press: HMRC Hit by £47m Phishing Scam Targeting Taxpayer Accounts

Posted on by Paul Stradling

Criminals stole £47 million from HMRC last year by exploiting over 100,000 taxpayer accounts in a major phishing scam.

The fraudsters used stolen personal data to access or create Government Gateway accounts, then submitted fake tax rebate claims. HMRC says no individuals lost personal funds, as the money was claimed directly from its own systems.

“This was an attempt to claim money from HMRC, not from customers,” the authority said. Affected individuals are now being contacted, though many didn’t know they had an account in the first place.

The incident only came to light during a Treasury Select Committee hearing, prompting criticism from MPs. Arrests have been made following an international investigation.

HMRC insists its systems weren’t hacked but has pledged further investment in account security. It blocked £1.9 billion in similar fraud attempts last year.

To guard against similar attacks, businesses should focus on phishing awareness training, enable strong two-factor authentication, and regularly audit account activity for unauthorised access.