UK spends £175M on British AI firm to tackle tax gap

HM Revenue and Customs has signed a landmark £175 million, ten-year deal with Quantexa, a London-based AI company, to overhaul the tax authority’s data infrastructure and deploy artificial intelligence to detect fraud, correct errors, and shrink the tax gap. This agreement ranks among the largest AI contracts in UK public sector history.

The partnership will see Quantexa’s technology integrated into HMRC’s core systems, enabling the agency to analyze vast datasets for suspicious activity and payment mistakes. The goal is to recover billions in lost revenue while improving compliance and efficiency. Officials describe the investment as a strategic move to modernize tax collection and ensure the UK remains a leader in sovereign AI capabilities.

Quantexa, which specializes in data analytics and network analysis, already works with financial institutions and government bodies globally. The company’s platform uses machine learning to connect disparate data points, flagging anomalies that might indicate fraud or non-payment. HMRC expects the system to reduce manual reviews and speed up investigations.

The contract also underscores the government’s push to keep critical AI infrastructure within British borders, prioritizing domestic firms over foreign competitors. By awarding the work to a UK-based company, officials aim to strengthen national security and data protection while fostering homegrown tech talent.

Quantexa’s CEO welcomed the deal, calling it a vote of confidence in British innovation. The project will roll out in phases over the next decade, with initial results expected within two years. HMRC has not disclosed specific targets for revenue recovery, but analysts estimate the investment could pay for itself many times over if even a fraction of the estimated £35 billion annual tax gap is recovered.