Government Required to Reveal Role of Artificial Intelligence in Tax Determinations
In a landmark ruling, a UK First-tier Tribunal has ordered HM Revenue & Customs (HMRC) to disclose whether they use artificial intelligence (AI) in decision-making related to research and development (R&D) tax credit claims. The ruling, which was made in August 2025, emphasises the importance of transparency in building trust with taxpayers and ensuring explainability in tax administration.
The legal challenge was initiated by tax specialist Tom Elsbury, who submitted a Freedom of Information (FOI) request in December 2023 after detecting AI-like patterns in HMRC rejection letters for R&D tax credits. HMRC initially refused disclosure, arguing that revealing AI use could jeopardise tax enforcement and enable fraud. However, the tribunal overturned this decision, setting a significant precedent for responsible AI governance in UK tax processes.
The R&D tax relief scheme, introduced by the Blair government in 2000, was designed to boost innovation in small and medium enterprises (SMEs) to help them compete. The scheme, as per government guidance, is aimed at projects that seek an advance in a field of science or technology by resolving scientific or technological uncertainty.
The tribunal's ruling comes at a time when concerns about the potential consequences of AI-generated decisions, particularly in industries related to defence and the military, have been raised. Judge Alexandra Marks at a first-tier tribunal found Elsbury's arguments in favour of transparency to be "compelling" and overturned the original decision.
HMRC will have until 18th September 2025 to comply with the FOI request. The full response from HMRC, including whether and how AI is utilised in R&D tax credit decision-making, is pending as of August 2025. This shift towards greater transparency follows scrutiny and a clear court mandate, marking a significant step forward in the responsible use of AI in UK tax processes.
Meanwhile, in a separate development, 33 inquiries were made into claims made by professional football clubs in May 2025. The case involving the transparency of HMRC's use of AI in key decisions is a reminder of the importance of accountability and transparency in all areas of public life.
References:
- The Guardian
- BBC News
- TechCrunch
- The Telegraph
In light of this ruling, the question of whether artificial intelligence (AI) plays a role in HMRC's R&D tax credit decision-making is a hot topic in the business and technology sectors, emphasizing the need for transparency and explainability, particularly in the context of AI governance. As the discussions surrounding AI's potential impacts, particularly in defense and military industries, intensify, the importance of accountability and transparency in all public services, including finance, cannot be overstated.
