The reforms come as businesses and individual taxpayers increasingly rely on AI-powered tools to manage their tax affairs. They aim to update existing legislation governing computer records, giving HMRC greater scope to examine how tax figures are generated rather than simply reviewing the final amounts submitted.
New Legislation Would Allow HMRC To Examine Automated Tax Calculations
According to Business Matters, the proposals would modernise Section 114 of the Finance Act 2008, allowing HMRC to access, check and inspect digital tax records, including those maintained by third-party software providers.
The changes were outlined in a government policy paper titled Reforming information powers and modernising computer records law, first published on 13 July 2026 alongside draft legislation.
The document was updated on 3 November 2026 with revised information about the number of businesses affected. A technical consultation on the proposed legislation had previously closed on 7 September 2026.
Under the reforms, HMRC would be able to examine not only the tax figures produced by computer systems but also the software and automated processes used to calculate them. These provisions would apply where the authority already has the legal right to request information.
The proposals also include changes to Schedule 36 of the Finance Act 2008, which governs HMRC’s information-gathering and inspection powers during tax compliance checks.
HMRC says the reforms are intended to improve its ability to access and process information in an increasingly digital economy. They would also support tax compliance investigations and help the authority meet international standards for exchanging information with other countries.
The legislation is expected to come into force in 2027, subject to the relevant Finance Bill receiving Royal Assent.
Businesses Remain Responsible for Mistakes Made by AI Tax Software
The proposed changes have prompted warnings about the responsibilities businesses and taxpayers retain when using automated systems to prepare their tax calculations. According to the Birmingham Mail, Seb Maley, chief executive of tax insurance provider Qdos, said HMRC was responding to the growing use of AI in tax administration.
“HMRC already has unprecedented amounts of data and increasingly sophisticated technology at its fingertips. These proposals are another sign of the direction of travel,” Maley said.
He explained that the authority increasingly wants to understand how automated systems arrive at their calculations, rather than merely examining the resulting figures. Maley also warned that using AI or other automated tools does not transfer responsibility for tax compliance away from the individuals or businesses concerned.
“Simply trusting a system to get things right won’t be enough if HMRC comes knocking,” he said.
HMRC already uses artificial intelligence in its compliance activities. Advisers previously suggested that incorporating AI-based social media profiling into its Connect system could improve its ability to identify unpaid tax.
The proposed inspection powers would extend scrutiny of digital tax records and the processes used to generate them, while leaving taxpayers and businesses responsible for the accuracy of their tax affairs.
