UK: HMRC published new guidance explaining how generative AI should be used in tax software – from transparency and human review to data security

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HMRC published a Guidance on Generative AI which sets expectations for software developers using generative AI in tax-related products, including tools that process invoices or support VAT refund claims. While the guidance is non-binding, it signals how HMRC expects AI-enabled software to be designed, positioned, and governed.This shows that not just companies are trying to regularize the use of AI within their company processes, but also tax authorities are starting to set expectations in relation to tax compliance.

Key themes are transparency, accuracy, human oversight, security, and accountability. Generative AI may be used to assist users (e.g. extracting invoice data, suggesting VAT treatment, summarising guidance), but users remain fully responsible for the correctness of VAT submissions. Software must not present itself as providing definitive tax result/ advice.The guidance reinforces a principle that matters deeply in regulated domains like tax: AI capability alone is not the goal. Trust is what sustains innovation. This is especially true for VAT and VAT compliance. It’s a high-stakes, highly regulated process where errors carry real financial and compliance risk. 

For VAT refund software, this means AI outputs must be explainable, based on reliable and up-to-date tax sources, clearly flagged as AI-assisted, and subject to user review before submission. Strong data protection controls and ethical safeguards are expected, particularly given the sensitivity of financial and personal data.

As regulators, businesses, and technology providers navigate the next phase of AI adoption, guidance like this helps set the expectation between tax payers and tax authorities. The future of AI in tax won’t be defined by how much we automate, but by how we do it responsibly, and how well we 𝗰𝗼𝗺𝗯𝗶𝗻𝗲 𝘁𝗲𝗰𝗵𝗻𝗼𝗹𝗼𝗴𝘆 𝘄𝗶𝘁𝗵 𝗱𝗲𝗲𝗽 𝗱𝗼𝗺𝗮𝗶𝗻 𝗸𝗻𝗼𝘄𝗹𝗲𝗱𝗴𝗲.

For details, please refer to HMRC Guidelines for using generative artificial intelligence if you’re a software developer