Whatever happened about HMRC using AI in R&D tax relief claims?

You may recall that there was an ongoing controversy around the possibility that HMRC might have been using AI to reject R&D tax relief claims.

We covered the story when it was breaking and again when it became apparent that HMRC may have been covering up unauthorised AI use.

There is now new information on the issue that has been quietly slipped out, so it is worth understanding what is going on and how it might affect R&D tax relief claims.

Are HMRC using AI to assess R&D tax relief claims?

Despite claiming only a few months ago that generative AI was not being used as part of work on R&D tax relief claims, HMRC have now revealed that Microsoft Copilot is being used to inform research and context.

There remains an assurance that Copilot is not being used to make specific decisions, but the reality may be more complicated than that.

Large Language Models (LLMs) are known to generate false information with a high degree of confidence.

Known as hallucinations, this ongoing issue is something that AI companies have wrestled with for some time, but have not yet been able to resolve.

While official figures are unclear, those same companies are keen not to reveal the limitations of their systems, hallucination rates for various LLMs have been documented by research across a range of users.

Copilot is found to have a hallucination rate of approximately 40 per cent.

This means that 40 per cent of the time when Copilot is asked a question, it will return partially or entirely erroneous data.

If HMRC agents are using Copilot for research, it raises the question of how this research is being assessed in terms of validity.

For instance, an HMRC agent may be unsure whether something counts as an advance. They may ask Copilot what the existing state of science and technology is and judge the R&D tax relief claim accordingly.

If Copilot imagines an advance has already been achieved, due to it treating science fiction as a factual source, or fails to register that knowledge is extant, then the HMRC agent’s view of the situation will be similarly false.

HMRC are trialling an AI summariser tool for technical reports and the Additional Information Form and we will await the results of this trial.

What does HMRC’s use of AI mean for R&D tax relief claims?

Currently, there seems to be no suggestion that sensitive data is being put into Copilot, although the possibility of this happening still remains.

It is unclear currently what the guidelines are surrounding the use of Copilot for research purposes and whether enough is being done to shield innovative businesses from having their advances exposed to a data-hungry LLM.

We know of HMRC’s use of AI in R&D tax relief claims due to the recent R&D Communication Forum, the details of which we have also taken a look at, though very little information has been released publicly on this implementation.

That it contradicts the previous assertion that no generative AI was being used for R&D tax relief claims is troubling.

However, innovative businesses and the accountants who help them should rest assured that valid R&D tax relief claims are still worth submitting.

If they get flagged for enquiry, whether that decision was informed by AI or not, we can help to defend them.

The use of Copilot for research may signal a need to be more transparent in referencing the existing state of knowledge through published sources in order to eliminate confusion on the part of HMRC agents.

We can help you to strengthen the detail of an R&D tax relief claim to mitigate the risk that is introduced through the use of unreliable LLMs.

Speak to our team for expert, human support with R&D tax relief claims.

Adam Bointon