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17/12/25 3:30 pm
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HM Revenue & Customs is stepping up a gear with its war on tax evasion — and this time, it’s armed with some powerful new tools - artificial intelligence (AI).
We’re all aware, given the enormous number of pre-budget flags flying, that the government needs revenue to fill the £30 or £40bn black hole, or whatever figure you choose to believe.
One way to do it is a stated commitment to cut down on tax evasion by hunting down those who are under declaring income or capital gains. In the past there were limited means by which to do so given that various government departments never joined up the dots between them - HMRC had no effective means of comparing and cross-checking taxpayers’ activities. No so today!
The tax authorities now use some amazing new “big brother” data tools. In a surge in investigations into the wealthy, and its new legal powers to dig into digital and financial records, HMRC has made it clear: the era of its benign neglect is over. Landlords, perhaps more than other groups, particularly those with multiple properties or complex tax affairs, are directly in HMRC’s crosshairs.
Every year around 11 million people wrestle with their self-assessment tax returns — a process few enjoy, but most accept as necessary. As we enter the tax reporting season landlords across the country will be getting their accounts in order, if they have not done so already. The 2024-2025 self-assessment tax return and payment is due by the 31st of January 2026.
The Government’s push to digitise tax reporting through Making Tax Digital is meant to simplify this chore, meaning landlords who fall into the MTD categories have no excuse but to keep their accounts bang up to date.
However, a recent analysis by the Daily Telegraph (“The dangers lurking in HMRC’s data grab”) warned, the shift towards a fully digital tax regime raises some deeper questions about confidentiality, accountability, and data security.
Centralising millions of taxpayers’ financial details on government systems is efficient, but as with all systems linked online, it poses a risk. Cybersecurity as we’ve all seen recently affects everyone, from large corporations down.
Experts have long worried about what happens when sensitive financial data sits on government systems which can be creaky, outdated and inevitably vulnerable to hacks. The same risk and concerns apply to HMRC’s growing use of automated data-matching tools. Efficient as they are when working optimally, they are nevertheless prone to error and pose a risk if not thoroughly checked out manually.
The HMRC’s “Connect” system already processes billions of data points from banks, online platforms, the Land Registry, and even utility companies. It can spot inconsistencies — that rental property regularly let out on Airbnb and not declared, a mortgage that doesn’t match declared rental income, the foreign holiday recorded on social media — faster than any human inspector could hope to achieve.
In principle, most landlords would welcome a fairer system that closes the gap between honest taxpayers and the cheating evaders. But as the Telegraph piece notes, the new powers leave uncomfortable questions about where efficiency ends and intrusion begins.
The scale of HMRC’s latest offensive is immense. In the last tax year alone, HMRC’s Wealthy Unit — the department tasked with monitoring those earning over £200,000 or holding assets above £2 million — launched more than 13,000 investigations into these high-net-worth individuals.
That’s a 60% increase on the previous year, according to the National Audit Office. Once these cases have been flagged up it’s just the start of in-depth investigations that can last for years and more than a decade in some cases.
HMRC says:
“Wealthy individuals may present a higher risk of error than other customers as the amounts involved are greater also because they may have investments in more than one country, making their financial affairs more complex. To secure compliance from wealthy customers, HMRC has a specific team that applies a proactive and co-operative approach, taking into account the unique nature of this customer group’s tax affairs.”
Although the focus is officially on the richest 2 per cent of the population, landlords should not be complacent. Many who would never consider themselves “wealthy”, or fitting into the 2 per cent bracket, still fall under HMRC’s spotlight — particularly those with portfolios of properties, income from property abroad, complex company structures, or large capital gains from disposals.
HMRC increasingly views property investment as fertile ground for “compliance risk.” It has long targeted undeclared rent, capital gains on second homes, and holiday lets incorrectly claimed as principal residences. Now, with sharper digital AI tools at its disposal, HMRC can cross-reference property ownership, mortgage data, council tax records, and even social media activity to detect inconsistencies.
With the introduction of increasingly onerous tax rates, in particular the removal of mortgage interest tax relief above a nominal 20 per cent tax credit (Section 24 of the Finance Act 2015), some landlords have been encouraged by dubious operators to find ways to minimise their tax by subscribing to some rather dodgy tax avoidance schemes.
HMRC is aware of one such scheme marketed to landlords, sometimes referred to as a ‘Hybrid Business Model’ which purports to reduce tax on income, capital gains and inheritance tax.
HMRC has taken the view that the schemes do not work and that those relying on the arrangements may well, ultimately, find themselves paying more tax than they thought they could avoid, plus they will pay interest and penalties. It has sent out
Perhaps the most controversial revelation came when HMRC admitted publicly for the first time that it is using AI to monitor taxpayers’ social media posts. The government department has confirmed that it uses algorithms to trawl public online content, using it to cross-check visible lifestyles against declared income and expenditure patterns.
HMRC insists that these tools are only deployed in the case of criminal investigations, and with “robust safeguards in place.” But as Conservative MP Bob Blackman has warned, the use of AI in such cases raises serious questions about fairness and accuracy. Blackman has said:
“If they suddenly start taking legal action against individuals based on that, it seems draconian... Without a human check, you can see there’s going to be a problem.”
Landlords with a social media presence should take note. Boasting about property renovations, second homes, or rental successes online may be great for the ego, but one day they could attract the attention of an algorithm designed to spot potential discrepancies.
Behind this new AI offensive is a clear fiscal motive. Chancellor Rachel Reeves says she has identified a £47 billion “tax gap” — that’s the difference between what HMRC thinks it should collect and what it does collect. Of this amount, £7 billion is expected to be clawed back through increased surveillance and compliance enforcement. HMRC officials are said to have hinted that expanding the use of AI across “everyday” tax processes will be key to delivering on their target.
For landlords, these developments land at a difficult time, not that honest landlords should fear them. Rental profits are already squeezed by higher mortgage rates, the Section 24 tax restrictions, and the pending end of Section 21 evictions make that a certainty.
This additional scrutiny from HMRC adds another layer of complexity and pressure when landlords are facing the prospect of complying with the demands of the biggest change in rental laws in a couple of generations – the Renters’ Rights Bill.
The private rented sector has many varieties of business models and by its nature is a tax-sensitive business. Income comes from various sources: from rents, furnished holiday lettings, HMO’s, Airbnb's through individuals, partnerships and property companies. Each has its own distinct reporting rules, allowances, and reliefs — and each offers opportunities for unintentional mistakes.
Landlords often fall foul of HMRC not through deliberate evasion, but through carelessness, haphazard record keeping or simply misunderstanding the rules. Whatever the cause of error, the increasing use of automation in investigations means such errors are more likely to be flagged up.
There are practical steps landlords can take to stay on the right side of this new AI-powered regime:
Keep records up to date and if possible in digital form ready for the changeover to Making Tax Digital (MTD), which is on the horizon. Landlords earning over £10,000 from property will be required to keep digital records and file quarterly returns. Start early by maintaining proper bookkeeping software and reconcile bank and rental data regularly.
Match income to evidence by ensuring that declared rental income always matches what appears on bank statements, letting agent reports, and tenancy agreements. Discrepancies here, even small ones, can trigger an automated flag.
Record all expenses and track them transparently. Only claim legitimate and fully documented (invoices) and evidenced deductions. Digitise copies of all invoices, maintenance bills, and agent statements. Avoid rounding up numbers as they always look suspicious to algorithms.
Declare all sources of income and don’t forget holiday lets, lodgers, or overseas properties, interest on investments and dividends. HMRC’s data-sharing agreements with platforms such as Airbnb and Booking.com and the banks mean these are now easily traceable.
Maintain consistency from one tax year to the next. AI tools’ strength is in spotting patterns. Sudden drops or jumps in declared income, particularly when inconsistent with mortgage records or big changes in lifestyle spending, are red flags.
If you are unsure, disclose. If you discover past errors, HMRC’s Let Property Campaign remains an efficient way to settle underpaid tax with reduced penalties. If you have been involved in one of the suspect tax avoidance schemes, contact HMRC without delay.
Unless your affairs are very straightforward and you feel confident at doing your own tax return you should seek professional advice. Complex portfolios, family partnerships, or property companies require specialist advice. An accountant familiar with property taxation is likely to be worth their fee many times over.
The Government insists that AI will make the tax system fairer and more efficient. In theory, landlords who play by the rules have nothing to fear. In practice, the scale and complexity of HMRC’s systems mean genuine mistakes risk being treated as deliberate fraud.
If an algorithm assigns a “risk score,” the process becomes less than transparent and takes no account of the human stress that can cause. The more HMRC automates, the harder it will become for ordinary taxpayers to challenge its findings.
For landlords managing their own affairs, the lesson is simple; every figure on a tax return should be capable of being justified with verifiable records.
The UK tax landscape is entering a new era, one where inspectors are armed with powerful algorithms, AI systems that can spot red flags instantly and decide who looks suspicious. For landlords, that means attention to detail and keeping up to date transparent accounting records.
HMRC’s AI systems may be efficient, but they are not infallible. False positives, misclassifications, and flawed assumptions can have serious consequences for those who fall under suspicion.
Honesty, openness and good record-keeping have always been important, now they are more important than ever.
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