HMRC Ordered to Disclose AI Use in R&D Tax Claims

A landmark ruling by the First-tier Tribunal (FTT) in Thomas Elsbury v The Information Commissioner [2025] UKFTT 915 (GRC) has required HMRC to reveal whether it used artificial intelligence (AI) in assessing Research & Development (R&D) tax relief claims. The Tribunal rejected HMRC’s secrecy arguments, finding that transparency and public confidence outweighed the potential risks cited by the tax authority.

This decision has significant implications not just for R&D claims but for the wider tax system, especially in disputes involving VAT fraud, MTIC fraud, and the Kittel principle, where AI-driven risk assessment may be influencing HMRC decisions without taxpayers’ knowledge.

Dispute Between Thomas Elsbury and HMRC

In 2024, tax expert Thomas Elsbury submitted a Freedom of Information (FOI) request to HMRC asking whether AI had been used in evaluating R&D tax credit claims. His concerns arose after noticing unusual features in HMRC correspondence, including the use of Americanised spellings, em dashes that were not typically found in HMRC templates, and letters that failed to match the specific details of the claims in question.

Elsbury argued that if AI was being used, especially without clear safeguards, it could undermine trust in HMRC’s processes and discourage legitimate claims, ultimately harming the UK’s innovation policy objectives.

HMRC refused to confirm or deny AI use, citing FOI exemptions aimed at preventing tax fraud. The Information Commissioner’s Office (ICO) upheld HMRC’s refusal, accepting that confirming AI use could prejudice the collection of tax. Elsbury appealed to the FTT.

For taxpayers and advisers, this is a reminder that challenging HMRC’s refusal to disclose key information requires both a clear understanding of Freedom of Information law and a strategic litigation approach. At LEXLAW, our tax disputes solicitors have extensive experience in compelling HMRC to release information critical to a client’s case, whether through FOI challenges, disclosure applications in the Tax Tribunal, or judicial review. In many cases, early legal advice can make the difference between uncovering decisive evidence and being left at a disadvantage in dispute proceedings.

Tribunal’s Findings and Legal Reasoning

The Tribunal considered two main questions: whether HMRC could refuse to confirm or deny AI use under FOIA exemptions, and where the balance of public interest lay. Judge Alexandra Marks found that Elsbury’s arguments were “compelling” and that the public interest in transparency outweighed HMRC’s stated concerns.

The Tribunal noted that concealing AI use risked undermining taxpayer trust and confidence in HMRC, and that there was a realistic possibility AI could be deployed by individual HMRC officers in an unauthorised way. Such a lack of transparency, the judge observed, could deter legitimate R&D claimants from applying, frustrating the scheme’s policy aims.

“The balance of the public interest lies in disclosing the information requested,” Judge Marks concluded.

HMRC was ordered to respond to the FOI request by 18 September 2025.

Read the Whole Judgement Here:

Understanding the Wider Impact on Tax Disputes

While the case centred on R&D tax relief, its principles apply far more widely. HMRC increasingly uses data analytics, machine learning, and potentially AI in:

• VAT Kittel principle cases denying input tax recovery where HMRC alleges “knew or should have known” involvement in fraud.
• MTIC fraud investigations risk profiling supply chains and trade patterns.
• Penalty decisions determining whether late filing/payment penalties should be issued.
• Customs and excise compliance automated risk scoring for imports and exports.

Taxpayers now have a precedent for seeking disclosure about whether AI influenced HMRC’s decision-making in their case, and if that process met legal standards of procedural fairness.

Practical Takeaways from the Ruling

This case demonstrates that transparency can be compelled through legal challenge, and that the FTT is willing to order HMRC to confirm AI use where the public interest outweighs potential operational risks. It also shows that procedural fairness can be challenged if AI has influenced an assessment in a way that causes error.

The ruling further highlights important data protection concerns, as AI use raises questions about the secure handling of sensitive business information. From a policy perspective, the decision underscores the danger that perceived unfairness could deter participation in relief schemes designed to promote innovation. Finally, the case confirms that well-targeted FOI requests can be a strategic tool for uncovering decision-making methods before entering litigation.

Why This Case Matters

The Tribunal’s ruling in Elsbury marks the first time HMRC has been compelled to disclose potential AI use in tax claim assessments. It signals a growing judicial willingness to prioritise openness over administrative convenience, even in areas where HMRC claims fraud-prevention justifications.

For businesses, the decision strengthens the ability to hold HMRC accountable for how it reaches its conclusions, particularly where technology and automation play a role. For advisers, it underscores the need to consider FOI processes alongside traditional tribunal and court appeals when challenging HMRC decisions.

At LEXLAW, our tax dispute lawyers regularly assist clients in challenging HMRC on both procedural and substantive grounds, including cases involving undisclosed decision-making processes. We have a proven record in HMRC investigations and tribunal litigation, we provide strategic and effective representation that protects our clients’ commercial and legal interests.

Need Help Responding to HMRC?

Timely, strategic legal advice is essential when facing an HMRC enquiry or penalty. Our team of specialist tax solicitors and barristers offers end-to-end support, from FOI requests and internal reviews to representation before the Tax Tribunal.

We combine legal precision with commercial acumen, helping clients navigate the complex interface between compliance obligations and evolving HMRC technology. Our team has a proven track record in defending clients against serious HMRC allegations, overturning penalties, and resolving disputes efficiently and decisively.

At LEXLAW, we ensure your interests are rigorously protected and your position is informed by the latest legal developments, case law, and best practices in UK tax dispute resolution. Contact us today for expert legal guidance and proactive representation.