Using apps, AI and online tax tools safely

Using an app

There are a wide range of smartphone apps (applications) available to help those with self-employment or rental income keep on top of their finances and taxes.

They offer a range of services such as:

• helping you to track your income and expenses via open banking technology (and categorising them for tax purposes),
• snapping and storing photos of receipts,
• sending an invoice,
• checking your cashflow and potential tax liability.

Prices vary depending on the functionality desired although some apps have free, basic offerings (typically as a way to promote their more advanced products).

Apps may make it easier when the time comes to complete any tax return required (although you may need to make adjustments to the figures - see our quick word of warning directly below). Indeed, some apps help you to do a tax return by automating it from the data. This approach means that they can often offer accountancy support at an affordable rate, because a lot of the accounting work is taken care of by the app.

More widely, some apps may also point out potential tax savings and deductions that you could benefit from and some may offer you access to ‘expert advice.’

It is unclear to what extent these apps have access to professional tax advisers, when building their products, designing their prompts and explanations or when handling your tax return. So you should bear in mind what we say below under the heading Verifying information found online.

HMRC currently provides free online software for people who are outside the Making Tax Digital for Income Tax (MTD) regime and who want to file a Self Assessment tax return online. However, we recognise that filing your own return without the support of an app or adviser can feel daunting, particularly if you are doing it for the first time.

HMRC will not provide its own software for Making Tax Digital for Income Tax (MTD). If MTD applies to you, or is likely to apply to you in the future, you will need compatible third-party software. GOV.UK provides guidance on finding software that works with Making Tax Digital for Income Tax, and you can also read our guidance on choosing Making Tax Digital software.

Using apps to track your income and expenses for your tax return

Most apps count the amount paid into someone’s bank account, which is the net amount – i.e. after any platform fees and commissions etc. have been taken at source. As such, you may need to make some adjustments to work out your actual gross income figure. This would be particularly important when considering the trading allowance, where you need to measure your gross turnover against the £1,000 threshold. 

For example, if you receive income of £892.50 direct to your bank account from a website which sells craft goods and the website charges 15% fees to sell the goods, the gross trading income is £1,050 (£1,050 less 15% fees (£157.50) is £892.50). This means you would not be eligible for full relief under the trading allowance and will need to register for self-employment and complete a tax return. It will also be important for determining whether Making Tax Digital for Income Tax will apply to you, as it is your gross income that is taken into consideration when applying the relevant thresholds. 

Most apps also classify and track outgoing expense transactions. While expense-tracking apps can be convenient, they don’t always account for the detailed tax rules that apply to small businesses. Relying on app-generated totals can lead to errors in your tax return, especially as HMRC increase scrutiny in this area. 

Users should ensure expenses are correctly categorised as business or personal and adjust for mixed business/private use. It is usually possible to add a note in the app, to manually record that there was, say, a 50% private use adjustment needed to the business expenditure amount. However, you would then need to ensure that the correct figures flow through to the tax return. If, say, someone notes their phone bill of £80 is half business, they would need to ensure that only £40 flows through to the tax return.

It is important to avoid double counting expenses when importing bank account data, if receipts are also held. It’s also important to make any necessary tax adjustments (such as for car leasing) and to choose between mileage allowances or actual cost methods, not both. Those with more complex tax affairs — such as using traditional accounting or being VAT-registered — need to take extra care, as apps may not automatically handle these correctly. 

If you are using the cash basis, which has been the default method for preparing accounts since 2024/25, you need to decide your approach to timing for recognising income received and expenses paid. For example, the app may recognise expenses when they are pending, whereas you might want to recognise them when they have actually cleared. There are no strict rules of when income receipts or expense payments should be recognised by a business using the cash basis, but a business must use a consistent approach. For more information see our guidance on the cash basis.

Verifying information found online

There are many ‘community’ forums like Money Saving Expert (MSE) or Reddit, where users can pose questions, share information or solicit advice including about tax matters, for free. 

It can be an effective way to access and gather knowledge, and responses to questions can be received quickly. If you are lucky, your question could be picked up by someone with relevant expertise (for example, LITRG post on MSE).

However, tax can be very complex and we are concerned that people may be told things or read things online or on social media about their taxes that may be wrong.

In such spaces, there is no control over the accuracy of the content and so individuals could easily be misled by incorrect information posted in good faith by another user. In this context, it is particularly vital to remember that the tax industry is not regulated and anyone can call themselves a tax adviser or accountant!

Even where the information provided is correct, it could be context specific. There are also often multiple messages flying around and/or ‘information overload’. For people unfamiliar with what to look for, it could be hard to pick out the objective and reliable information in all of the user-generated content.

While online forums can offer valuable insights and support, it is essential to approach them with caution and understand their limitations.

If you are told something about your tax, we suggest you try and ‘double check’ what you are being told. We would usually recommend approaching HMRC or a professional tax adviser either via TaxAid or on a paid basis. LITRG also produce a range of information and guidance.

Using AI for tax questions

Artificial intelligence (AI) can provide instant access to tax information, making it easy to get answers to your questions anytime. 

Tools like ChatGPT and Google’s Gemini are large language models – basically they are trained on the huge amount of content available on the internet ­–­ books, websites, text, data etc. AI doesn’t really ‘know’ things, but because it has read so much, it is very good at guessing the next word in a sentence based on the prompt and everything it has seen before in relation to the subject matter in the prompt.

We have tested AI fairly extensively and can see the appeal – it returns clean, uncluttered answers, in super-fast time. It is very good at generating human-like responses. The personalisation/conversational style makes it feel accessible and it invites follow up questions.

However, AI systems may have limitations in terms of their ability to answer very specific or nuanced questions. Tax laws can change frequently and AI may not always reflect those changes. This means AI tools may not always provide accurate or up-to-date information, especially if they rely on outdated data or algorithms. Tax can be extremely complex and AI may struggle to fully understand unique circumstances, leading to potentially incorrect or misleading answers. In some cases AI answers may even be made up. This is because some AI tools are more likely to try and fill gaps rather than admit they don’t know the answer. The dangers of ‘hallucination’ can be seen in the tax case of Felicity Harber v HMRC, where the appellant tried to rely on legal principles set down in previous tax cases which AI had made up.

You should also be aware of data issues – asking AI for help may involve sharing sensitive personal or financial information. Once you share information with an AI tool, it may: 

• retain it forever
• use it in various ways, including to train and improve its AI models
• share it with other users