Millions warned over major HMRC shakeup - ‘scanning chats’

Taxpayers could be asked to hand over their artificial intelligence (AI) chatbot histories to HM Revenue & Customs (HMRC) under new rules to catch out dodgers. People who use AI chatbots such as ChatGBT to help with their tax returns could be asked to hand over those conversations to HMRC under the proposed changes. The tax authority's powers to ask for computer "records" to check whether people have paid enough tax could be expanded under the Budget Bill which will become law in May.

Proposals in the bill could mean that third parties including AI platforms and software providers may be forced to share taxpayer information, The Telegraph reported. Those who fail to respond to a formal information notice from HMRC will be hit with an penalty of £300. This can rise to £3,000 for taxpayers who don’t report inaccuracies.

Some, however, have raised concerns about the proposals. Anne Strickland, a researcher at the TaxPayers' Alliance, said: "Forcing taxpayers to hand over private AI conversations would be a deeply intrusive overreach by the taxman."

She added: "HMRC already has sweeping powers, and expanding them further risks trampling over the privacy of ordinary Britons."

Andy Wood, Tax Barrister at Tax Barrister UK, told the Express: “The suggestion that HMRC could examine taxpayers’ AI conversations understandably raises privacy concerns.

"However, the proposed changes do not give HMRC an unrestricted right to read everybody’s chat history. They modernise its powers over digital information, including information about how tax figures have been produced, while retaining the requirement for a lawful basis to obtain it.”

“The crucial words are ‘reasonably required’. HMRC must be able to justify why the information is needed to check the taxpayer’s tax position. The fact that someone has used an AI tool does not, by itself, justify a demand for their entire conversation history.

“Context is also essential. A conversation might explore a hypothetical transaction, test competing interpretations of the law or consider an idea that was subsequently abandoned. Asking how a transaction would be taxed is not the same as admitting that the transaction occurred. HMRC should not mistake exploratory questions for statements of fact."

He added: “My greater practical concern is what happens when the request goes to a third party holding the information. A taxpayer and their adviser may be prepared to contest an excessive request. A provider may have less incentive to do so and may regard compliance as easier and cheaper than a dispute. Taxpayers should not assume that the organisation holding their conversations will advance every argument they would make themselves.

“Modernising information powers is understandable. Turning a targeted tax check into a general examination of someone’s private digital life is not.”

A spokesperson for HMRC said: "This is about updating our existing information powers to reflect how tax information is now stored and processed digitally.

"It is not about going through everyone's use of large language models. We can only request information where we already have a lawful basis to do so."