HMRC grants £175 million AI contract to British company Quantexa to address the £46.8 billion tax gap.

      **TL;DR** HMRC has granted a £175 million, ten-year AI contract to London-based Quantexa aimed at identifying tax fraud, correcting errors, and addressing the £46.8 billion tax gap. This marks a strategic move towards British AI independence after over £900 million spent on contracts with U.S. firm Palantir in various UK government sectors.

      **HM Revenue and Customs** has awarded a £175 million, decade-long contract to Quantexa, a London-based AI firm, to enhance the tax authority’s data infrastructure and utilize artificial intelligence for fraud detection, error correction, and closing the tax gap. This contract stands as one of the largest AI agreements in UK public sector history and signifies a move towards national sovereignty in AI technology. The government previously allocated over £900 million to Palantir, an American data analytics company, across numerous departments including the NHS. In contrast, the Quantexa agreement centers on a British company, ensuring that data remains within HMRC's secure environment.

      The tax gap, which is the disparity between owed and collected taxes, reached £46.8 billion in 2023-24. The government aims to recover an additional £10 billion annually by 2030, and Quantexa's role will be crucial in this effort.

      **The Company**

      Founded in 2016 by Vishal Marria, who was formerly the youngest executive director at Ernst and Young, Quantexa specializes in a Decision Intelligence platform that integrates data from various sources, resolves identities across datasets, and employs graph analytics and machine learning to uncover patterns beyond human recognition. Initially focused on anti-money laundering in banking, with HSBC as an early client, the technology has evolved to assist tax authorities in identifying suspicious activities among millions of tax returns.

      Quantexa reported revenue of £126 million for the fiscal year ending March 2025, reflecting a 49% annual growth, and its recurring revenue exceeded $100 million. In March 2025, it raised $175 million in a Series F round, achieving a valuation of $2.6 billion, backed by investors like Warburg Pincus and HSBC. With total funding at $546 million, the company operates in over 70 countries across sectors such as financial services and public administration.

      In the realm of generative AI, Synthesia has emerged as the UK's most valuable company with a valuation of $2.1 billion, while Quantexa’s valuation of $2.6 billion underscores its status within the enterprise decision intelligence sector—a distinct area of British AI innovation, contrasting Synthesia's focus on generative media.

      **The Contract**

      The HMRC contract includes three main components. First, Quantexa will modernize HMRC’s foundational data systems, linking disparate data to create a comprehensive view across various tax types, while overcoming fragmentation. Quantexa’s entity resolution technology will connect records related to the same individual or transaction, making patterns observable.

      Second, the platform will utilize AI to detect tax fraud and evasion, unveiling hidden networks involved in fraudulent activities. Graph analytics will trace connections among entities beyond the capabilities of human auditors using spreadsheets.

      Lastly, the system will enhance HMRC's customer service operations by expediting query resolution. Growing public dissatisfaction with HMRC, evidenced by an increase in complaints, necessitates improved response times. AI-assisted case management will be part of this solution.

      Marria emphasized the importance of human oversight in taxpayer-related decisions made by AI, stating that "AI cannot operate as a black box" in government settings, and affirmed that HMRC data will remain securely within its environment.

      **The Sovereignty Question**

      The NHS has granted Palantir contractors greater access to identifiable patient data, eliciting criticism from various groups. The previous Conservative government awarded a £330 million contract that placed an American company at the core of the NHS's data systems. In light of this, the science minister has indicated that future government contracts will prioritize British technology.

      The Quantexa contract exemplifies this new approach: it involves a British company, founded and funded locally, processing UK tax data privately. The government initiated a Sovereign AI Unit in 2025 with a £500 million budget to boost domestic AI firms. Quantexa aligns with the unit's objectives, and the HMRC contract can validate this strategy on a larger scale.

      UK AI startups are collectively valued at $256 billion, ranking the country third globally, behind the U.S. and China. The question has not been about the availability of companies, but whether the government would purchase from them. The Quantexa agreement indicates a shift in this regard.

      **The Tax Gap**

      The £46.8 billion tax gap represents 5.3% of total tax liabilities. The compliance target for 2025-26 is £50.4 billion, with HMRC achieving £24.2 billion so far. Addressing the gap involves not just technology, but also increasing the number of compliance