An update has been provided as government officials press for answers on the growing consideration of new ways to address a major issue in the UK. MPs were told that HMRC is exploring the use of AI to help tackle the tax gap that’s getting exploited by fraudsters in the system.

Tax avoidance involves bending the rules of the tax system to try to gain a tax advantage. It is estimated that the UK Government lost out on £0.7bn due to tax avoidance between 2023 and 2024.

HMRC claims that tax avoidance often involves “contrived, artificial transactions that serve little or no purpose other than to produce this advantage”. Officials add that it involves “operating within the letter, but not the spirit, of the law”.

Tax evasion is slightly different, as the government calls this act “a deliberate attempt not to pay the tax which is due” which is illegal. A spokesperson added: “We will pursue those who engage in evasion, with serious consequences for those who don’t pay all the tax they owe, from financial penalties to criminal conviction and imprisonment.”

The estimated loss to the UK government from tax evasion was £5.5 billion in 2022-23 and was estimated to be around £6.5 billion for 2023-24. Telford’s Labour MP Shaun Davies asked Exchequer Secretary Dan Tomlinson: “What assessments have been made of the potential for AI and digital technology to reduce tax evasion and tax avoidance?”

The Labour MP for Chipping Barnet replied: “HMRC’s expansion includes how they focus their compliance work through new risk-targeting capabilities to identify cases for investigation, improving case selection. It also means using AI to identify nascent issues with the tax system, so they can act rapidly to prevent them before they grow.

“HMRC is harnessing artificial intelligence to deliver a more efficient and professional service for customers. They will use new technology as a tool to help them do their jobs more effectively.

“Greater use of AI will mean that staff spend less time on admin and more time helping taxpayers. It will also help HMRC better target their action against fraud and evasion, to bring in more money for public services.

“Artificial intelligence supports some of their processes but never replaces human decision-making and oversight. HMRC remains committed to the safe use of these technologies, underpinned by strict data protection, security and ethical standards.

“In cases where AI is used in a way that could impact customer outcomes, HMRC ensures that results are explainable and that there is always human oversight. This means that even when AI is used to support decision-making, final decisions are always made by experienced, trained case workers.”