UK firms face closer tax scrutiny as HMRC expands AI use

HM Revenue and Customs is leaning more heavily on AI and advanced data analytics to detect tax non-compliance and select businesses and individuals for investigation. Its latest annual report says the technology helped protect and record £10 billion in tax revenue during 2025-26, contributing to a record £50.2 billion compliance yield.

The department still narrowly missed its £50.4bn compliance target, and growth in protected tax is slowing: the latest yield rose 4.6% over the last year, compared with 15% last year and 23% the year before. HMRC is also ahead of plans to recruit an additional 5,500 frontline compliance officers by 2030 as part of its push to reduce the tax gap.

Large businesses remain central to HMRC’s enforcement returns, with corporation tax investigations involving large businesses generating £6.45bn and VAT investigations producing £4.59bn. Outstanding tax debt rose from £44bn to £44.7bn, although HMRC said it resolved almost £102bn of debt.

Construction and automotive companies may face more scrutiny after HMRC identified a doubling of tax risks in those sectors and flagged Construction Industry Scheme tax risk. Changes targeting umbrella company avoidance and CIS rules may hit construction businesses that rely heavily on temporary labour.