HMRC Invests £175m in AI to Fight Fraud and Fix Tax Systems
HM Revenue and Customs (HMRC) plans to modernise the UK’s tax system and address rising public dissatisfaction with technology.
At the heart of this transformation is a new 10-year, £175m (US$237m) deal with British tech firm Quantexa, alongside a deepened collaboration with Microsoft to integrate Gen AI across its operations.
The move comes at a critical time for the department.
According to BBC reports, public complaints regarding HMRC performance surged to over 93,000 in 2024-25, up from 70,000 four years prior.
Taxpayers have cited poor response times as a primary grievance.
By adopting AI-powered systems, HMRC hopes to streamline interactions, making the tax process “simpler, more efficient” and better suited to the digital age.
Tackling fraud and errors
The partnership with Quantexa focuses on data integration.
The London-based firm, valued at US$2.6bn, will provide technology that combines internal HMRC data with external sources.
This will enable the tax office to identify hidden networks of fraudulent activity and fix unintentional errors – such as payments made under the wrong reference number – more rapidly.
The government’s decision to partner with a UK-based firm reflects a push for digital sovereignty, aiming to reduce the UK’s reliance on US-based big tech platforms.
However, Microsoft remains a “key collaborator” in HMRC’s internal evolution.
The department is currently rolling out Microsoft 365 Copilot to 28,000 staff, with plans to expand the rollout to 50,000 employees.
Improving the customer experience
HMRC manages one of the UK’s largest customer support operations, with 20,000 staff catering to 40 million taxpayers.
James Mitton, HMRC’s first Chief AI Officer, told Microsoft that the goal is to become an “agile department supported by a modern IT infrastructure, with innovation driving a better customer experience”.
Specific innovations include AI agents designed to assist with complaints handling.
These tools can summarise customer grievances and help advisers identify the necessary information to resolve issues quickly.
David Johnson, Head of Innovation at HMRC, told Microsoft that the systems would offer “smarter, more intuitive customer journeys” with tailored guidance to prevent taxpayers from unknowingly missing deadlines.
The human element and ethics
Despite the heavy investment in automation, both HMRC and its partners insist that machines will not replace human judgment.
Quantexa Founder and CEO Vishal Marria said the technology is designed to “support human decision-making, not replace it”.
He emphasised that “in government environments, AI cannot operate as a black box”, and that decisions must remain transparent and auditable.
Similarly, HMRC confirmed that AI will not make final decisions on tax review cases.
“Any decisions will be reviewed and signed off by a human in the process with the relevant tax expertise”, David told Microsoft.
By automating repetitive clerical tasks and taking away the repetitive, the department hopes to free up civil servants for higher-value work.
Ultimately, the government believes these efficiencies will help close the tax gap – the difference between tax owed and tax collected – thereby securing more funding for vital public services like the NHS and education.
