HMRC must disclose AI involvement in tax decisions
A court has ruled that HMRC must disclose if it uses artificial intelligence (AI) in key decisions relating to granting research and development tax credits.
Tom Elsbury, a tax expert who founded the specialist tax relief software platform Novel, lodged a Freedom of Information (FOI) request back in December 2023.
But according to Judge Alexandra Marks at a first-tier tribunal, his arguments in favour of transparency are “compelling” and that the original decision should be overturned.
Elsbury believed that the government tax enforcer used AI as the basis of its decision to block businesses’ access to the tax relief.
He told the Financial Times that the public should know “if AI is concluding or forming a decision in tax enquiries” on enterprise tax credits, and should know if penalties have been handed down on the basis of AI-generated decisions.
Elsbury added: “R&D tax relief affects a variety of different industries, including those related to defence and the military, and may involve details around innovative defensive or offensive weapons systems developed within the UK on behalf of the Ministry of Defence.
“This has the possibility of causing catastrophic consequences.”
HMRC tax credit crackdown
HMRC had initially refused the FOI request from the tax expert on the grounds that the information could help false claimants, in a decision which was then upheld by the Information Commissioner’s Office (ICO) in 2024.
R&D tax credits are aimed at projects which “seek an advance in a field of science or technology by resolving scientific or technological uncertainty”, according to government guidance.
The tax relief scheme was introduced by the Blair government in 2000 with a view to boosting innovation in small and medium enterprises (SMEs) to help them compete.
Following a spate of fraudulent applications and grants made in error, HMRC has launched a crackdown on the tax credit.
In May, 33 inquiries were made into claims made by professional football clubs.
The ICO said at the time: “We have received and respect the Tribunal’s decision on this matter. Having reviewed the detail, we will not be appealing.”
Following the court ruling, HMRC will have until 18th September to comply with the Freedom of Information request.
HMRC said: “We are carefully reviewing the decision and are considering our next steps.”