Government ministers have confirmed that HMRC is exploring new ways to clamp down on tax evasion and tax avoidance, including the potential use of artificial intelligence (AI) to identify fraud more quickly and improve investigations.
MPs were updated after growing concerns about the size of the UK’s tax gap the difference between the tax that should be collected and the amount actually paid which continues to be exploited by fraudsters.
What HMRC Says About Tax Avoidance and Tax Evasion
HMRC explained that tax avoidance often involves legal-looking schemes that are deliberately structured to gain unfair tax advantages.
They described it as involving:
- Artificial or contrived arrangements
- Transactions that serve no real purpose except to reduce tax
- Actions that follow the letter but not the spirit of the law
By contrast, tax evasion is illegal.
It involves:
- Deliberately not paying tax that is due
- Hiding income or assets
- Intentionally misleading HMRC
Officials warned that those who evade tax face serious consequences, including:
- Financial penalties
- Criminal prosecution
- Possible imprisonment
Billions Lost Each Year to Tax Fraud
Government figures show the estimated cost of tax evasion was:
- £5.5 billion in 2022–23
- Around £6.5 billion in 2023–24
MPs questioned whether new digital tools including AI could help reduce these losses.
Ministers Confirm AI Is Already Being Tested Inside HMRC
Labour MP Shaun Davies asked the Treasury what role modern technology could play in tackling fraud and avoidance.
Exchequer Secretary Dan Tomlinson confirmed that HMRC is already expanding its risk-targeting systems to improve how investigations are selected and prioritised.
He said AI is being used to:
- Spot emerging risks earlier
- Detect suspicious activity faster
- Prevent issues before they grow
- Improve the accuracy of case selection
Tomlinson added that AI is intended to support staff not replace them.
AI Will Not Replace Human Decision-Makers, HMRC Says
The minister stressed that:
“Artificial intelligence supports some of HMRC’s processes, but never replaces human decision-making and oversight.”
HMRC said the technology will:
- Reduce time spent on admin tasks
- Allow staff to focus more on customer support
- Help investigators better target fraud and evasion
- Increase revenue collected for public services
Where AI is used in cases affecting taxpayers, HMRC ensures:
- Outcomes are explainable
- Systems are ethically monitored
- Human caseworkers always make the final decision
Strict Safeguards Will Be Applied
HMRC said all AI systems are governed by:
- Strong data protection rules
- Security controls
- Ethical standards
- Human review procedures
The department emphasised that AI will remain a tool not an authority.
Final decisions will always be taken by experienced, trained HMRC caseworkers.