The UK court has directed HM Revenue & Customs (HMRC) to clarify whether AI is involved in the decision-making process for R&D (R&D) tax credit application.
The decision stems from a Freedom of Information (FOI) request made by tax advisor Tom Elsbury in December 2023.
Elsbury et al. had identified patterns of rejection letters from HMRC that led them to doubt AI involvement in assessing R&D tax credit claims.
Initially, HMRC rejected the FOI request and argued that revealing such information could promote fraud. This stance was supported by the Information Committee (ICO) in 2024.
However, the court overturned the previous decision, saying that public interest is leaning towards transparency in this context.
Judge Alexandra Marks characterized Elsbury's argument as “persuasive” and confirmed the public's right to know whether AI is being used in tax-related decisions.
The judgment indicated that HMRC refused to confirm or deny the use of AI in assessing R&D claims.
Elsbury, who founded the novel for the R&D Tax Relief Software Platform, emphasized the need for clarity regarding AI safeguards in the decision-making process.
Also, concerns were raised when reviewing R&D claims by HMRC staff about the possibility of using large-scale published language models such as ChatGPT.
Elsbury warned that the application of such tools is at risk of exposing sensitive commercial information, particularly in areas related to national security.
R&D's tax relief claims may contain information about advanced weapons systems developed for the UK Department of Defense, and careless disclosure of such data via AI platforms has serious implications.
In recent years, HMRC has been stepping up its scrutiny of R&D tax credits due to an increase in instances of fraud and errors.
While government agencies are taking steps to address system misuse, some professional organizations and tax advisors have expressed concern that their approach may be overly harsh, leading to rejecting valid claims and preventing businesses from seeking relief.
The court has given HMRC a deadline of September 18, 2025 to comply with the disclosure order.
