HM Revenue and Customs (HMRC) is set to gain the ability to examine how tax figures are produced, including the software, automated systems, and potentially AI tools behind them under proposed changes expected to take effect in 2027. The reforms would modernise Section 114 of the Finance Act 2008, allowing HMRC to access, check, and inspect digital tax records.
These changes are subject to the Finance Bill receiving Royal Assent. As per tax insurance provider Qdos, the proposals go beyond giving HMRC access to final figures.
Where the authority already has a legal right to request information, it would be able to examine how those figures were generated, including the software and automated processes involved. Initially released in July 2026, the technical consultation closed in September.
According to The Telegraph, the Budget Bill expands the definition of digital information to include "any relevant thing," implying uncertainty over whether prompt history, AI working papers, and chatbot communications will become disclosable. Seb Maley, CEO of Qdos, said: "AI and automation might make managing tax affairs easier, but it doesn't remove responsibility from the taxpayer.
Ultimately, if something goes wrong, these parties will face questions from HMRC." An HMRC spokesman stated: "This is about updating our existing information powers to reflect how tax information is now stored digitally. It is not about going through everyone's use of large language models; we can only request information where we have a lawful basis." Taxpayers failing to respond to HMRC requests face an initial £300 fine, with up to £3,000 for unreported inaccuracies.
The government maintains that these measures are essential to ensure compliance in an era where digital tools are increasingly integrated into financial reporting. Industry experts suggest that businesses should begin auditing their AI-driven accounting processes now to ensure they are prepared for the 2027 implementation.
The shift represents a significant move toward digital oversight in the UK tax landscape. As the integration of AI in business grows, the regulatory framework must evolve to keep pace with technological advancements.
The proposed changes aim to bridge the gap between traditional tax auditing and modern digital financial management. The focus remains on transparency and accountability, ensuring that taxpayers understand that the use of automated software does not absolve them of their legal obligations to the state.
With the deadline approaching, stakeholders are encouraged to review their digital record-keeping practices to align with the upcoming requirements set forth by the authorities.