HM Revenue and Customs (HMRC) could demand access to taxpayers’ AI chatbot conversations under proposed legislation expanding its powers to collect digital records, raising questions about the privacy implications of using tools such as ChatGPT for financial and tax advice.

The changes, included in the Budget Bill, will broaden the definition of digital information HMRC can request from computer records to any “relevant thing”. The legislation is expected to become law by the end of May 2027.

The expanded powers could cover conversations, prompts, working papers and audit trails generated by AI systems where they form part of the process used to calculate tax liabilities.

Under the proposals, HMRC could request relevant information from third parties, including AI platforms and software providers, rather than relying solely on taxpayers to supply records.

The authority already uses Schedule 36 notices to demand information from individuals and businesses where it considers the material necessary to check their tax affairs. Taxpayers who fail to respond face an initial £300 fine, rising to £3,000 for those who fail to report inaccuracies.

Seb Maley, chief executive of tax insurance provider Qdos, told The Telegraph that HMRC wanted to understand not just the tax figure produced by automated systems, but how the calculation had been reached.

Nimesh Shah, chief executive of Blick Rothenberg, told The Telegraph that the proposals raised questions about whether chatbot conversations involving ChatGPT, Claude and Copilot could become disclosable if they contributed to tax calculations.

The proposals have prompted concerns about the potential reach of HMRC’s information-gathering powers. Anne Strickland, researcher at the TaxPayers’ Alliance, told The Telegraph that requesting private AI conversations would be a “deeply intrusive overreach by the taxman”.

However, the Government maintains that the reforms will not change the purpose for which HMRC can request information. An HMRC spokesperson said: “It is not about going through everyone’s use of large language models. We can only request information where we already have a lawful basis to do so.”

The authority's existing notices can be challenged where taxpayers do not hold the requested information or HMRC cannot demonstrate a reasonable need for it.

The changes form part of wider efforts to address the UK's £59 billion tax gap. HMRC is pursuing other measures, including plans announced at the Budget to recover certain low-value tax debts directly from bank accounts from July 2029, where taxpayers have repeatedly failed to engage.

AI use in financial matters is becoming increasingly widespread. Research by Lloyds Banking Group found that more than 28 million UK adults, equivalent to 56 per cent of the population, had used AI for personal finance, budgeting or financial advice.

HMRC said its powers needed updating to reflect how tax information is increasingly stored and processed digitally.

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