Tax – Natpoint

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.

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.

Tag: Tax

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