Developing tax software with AI? New guidelines are here

HMRC has set out its expectations for how software developers should use AI in tax software products, as it wants to encourage its innovative use to help build products, while protecting users from any potential problems. AI could be used to develop products to help people submit their tax returns or other information to HMRC, or to help customers with their taxes in another way. But HMRC has released guidance on what they would expect these developers to do if they are using AI to create these kinds of tools. For example, HMRC expects developers to be transparent about whether their products use generative AI, that they only use reliable source data, which is in line with relevant legislation, and that any products are designed with human oversight and control. Although the guidance is aimed primarily at software developers, it is also relevant to businesses and taxpayers who use AI-powered accounting and tax software. Users should understand how the software works, review any AI-generated recommendations carefully, and seek professional advice where the tax treatment is unclear.

What about security?

Strong security is non-negotiable when it comes to any software that is used to help taxpayers with their submissions, or any other aspect of their tax affairs. HMRC insists that any software generated with or without AI is developed with ethical data security and privacy measures. This includes complying with UK General Data Protection Rules (UK GDPR). Also, the software should clearly flag to the user if it “identifies areas involving nuanced tax rules, complex scenarios or specific guidance”, says HMRC. It should also identify if there is a need to investigate further or recommend the need to seek guidance from a qualified tax adviser. While AI tools can improve efficiency and assist with bookkeeping, forecasting and tax administration, they may occasionally produce inaccurate or incomplete answers. Important tax decisions should not be based solely on AI-generated outputs without appropriate review. In addition to all these requirements, developers should also highlight that it’s the taxpayer’s responsibility to make sure their tax returns are correct. AI can be a valuable tool for assisting with tax and accounting processes, but it should complement rather than replace professional judgement and qualified tax advice. Users should review AI-generated outputs carefully and seek advice where there is any uncertainty regarding the tax treatment of a transaction.

Conclusion

Artificial intelligence is likely to become an increasingly common feature of accounting and tax software, offering opportunities to improve efficiency and automate routine tasks. However, taxpayers should remember that responsibility for the accuracy of information submitted to HMRC remains with them, regardless of the software used. While AI can assist with record-keeping, analysis and tax administration, it may not always recognise the nuances of individual circumstances or complex areas of tax legislation. As a result, significant tax decisions should not be based solely on AI-generated outputs. Professional judgement and appropriate advice remain important, particularly where there is uncertainty or the potential for significant tax consequences. Disclaimer This article is intended for general information purposes only and reflects our understanding of HMRC guidance and UK legislation at the time of writing. The use of artificial intelligence in tax and accounting software continues to evolve and users should not rely solely on AI-generated outputs when making tax decisions. Professional advice should be sought where uncertainty exists.