HMRC have been given until 18 September to comply with a Freedom of Information (FOI) request and reveal whether it used artificial intelligence when making judgments on Research & Development (R&D) tax credits.
In Thomas Elsbury v The Information Commissioner, the First Tier Tribunal (FTT) ruled that HMRC must disclose if and when Artificial Intelligence (AI) was used in cases involving Research and Development (R&D) tax reliefs, overturning decisions made by both HMRC and the Information Commissioner.
Thomas Elsbury, a tax expert specialising in R&D claims, put in a Freedom of Information (FOI) request to HMRC when he and colleagues began to suspect AI was being used in some assessments. American spellings, em dashes, and official letters that did not align with the specifics of the case being examined were examples that raised suspicion.
He had concerns around safeguards, bearing in mind the technology was being applied to R&D claims and critical intellectual property. Mr Elbury argued that, "There are huge risks to R&D in the UK if legitimate and sensitive information given to HMRC is being used insecurely".
HMRC refused to comply, and in a case before the Information Commissioner, argued that confirming or denying whether they held the requested information would assist those intent on defrauding the system and prejudice the collection of tax. When the Commissioner considered the public interest argument, there were transparency concerns, but these were superseded by HMRC's position.
First Tier Tribunal judge, Judge Alexandra Marks, thought otherwise, saying, “the balance of the public interest lies in disclosing the information requested”, and gave HMRC until September 18 to comply.
The FTT found Mr Elsbruy's submissions 'compelling'.
"HMRC's failure either to confirm or deny that the requested information was held reinforces the belief based on indicators in HMRC correspondence dealing with R&D claims that AI is being used. One concern is that AI use may be being used by individual HMRC officers in an unauthorised manner - thus undermining taxpayers' trust and confidence in HMRC's treatment of claims, in turn discouraging legitimate claimants from making claims, thereby hindering the policy objectives of the R&D tax relief scheme itself," the FTT concluded.
The Information Commissioner has said they would not appeal the case, while HMRC said they had not yet decided.
The case came in the same week that the Daily Telegraph claimed that HMRC used AI systems to 'spy' on social media posts during compliance checks under HMRC's Open Source policy. This was outlined in HMRC internal manual Compliance Handbook, section CH201640Compliance Handbook, section CH201640.
Useful guides on this topic
Research & Development Tax Reliefs
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?
R&D: SME Tax Credit scheme
What Research & Development (R&D) schemes are available for small and medium-sized companies undertaking R&D? How to make an R&D claim? What are the qualifying costs and how much can be claimed?
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
External links
Thomas Elsbury v The Information Commissioner FT/EA/2024/0472V