HMRC is set to acquire new tax powers, enabling it to seize funds from bereaved families, examine taxpayers' AI chatbot histories, and levy substantial fines for unintentional errors in documents. These changes were quietly advanced following John Healey’s Autumn Budget and were included in the Finance Bill, passing its first reading on 3 November.
The government aims to address the UK's tax gap, which cost the Treasury nearly £60bn in lost tax receipts during the 2024/25 financial year. With Labour's manifesto restricting increases to income tax, VAT, and employee national insurance, the government is focusing on compliance and enhanced enforcement powers for HMRC to boost revenue.
From April 2028, a statutory 'Duty to Correct' regime will require taxpayers to rectify mistakes on old tax returns once discovered. Currently, such errors are treated as 'careless' with penalties up to 30% over six years. The new regime could classify even unintentional inaccuracies as 'deliberate', carrying fines of up to 100% and a 20-year scrutiny period. This has raised concerns among tax barristers regarding the lack of a minimum threshold for errors and the 20-year window, which conflicts with statutory record-keeping rules for the self-employed.
HMRC will also be granted the right to demand information from deceased taxpayers' families for an unlimited period, extending beyond the current four-year limit. Additionally, it can gather evidence for existing tax investigations going back up to 20 years. Draft legislation indicates HMRC will need to apply to a tax tribunal for information demands beyond four years after death, but will not be required to inform executors or families until after a decision is made.
Furthermore, HMRC will soon be able to access taxpayers’ messaging records with AI chatbots. The definition of digital information will be expanded to include 'relevant' digital records, potentially encompassing AI chatbots, and will require third-party software providers to share tax information if they hold it. Praveen Gupta, head of tax at Azets, highlighted concerns that these new powers could cross the line into overreach without proper safeguards, while Matthew Greene, partner at Stewarts, noted the risk of innocent taxpayers being drawn into unnecessary investigations.