HM Revenue & Customs has become “a law unto itself for far too long”, according to former Conservative leader Sir Iain Duncan Smith, who has warned that the tax authority’s growing reach into the private lives of millions of Britons is raising serious questions about privacy, accountability and the relationship between citizen and state.
Sir Iain’s comments come amid growing concern over the sheer volume of personal financial information now being collected by HMRC.
“Their failings have been huge, their oversteps in terms of poking into people’s private affairs are also enormous and their failings have left the taxpayer picking up the bill,” he said.
For many taxpayers, the scale of HMRC’s data gathering will come as a surprise.
Over the past decade, successive Finance Acts have steadily expanded the tax authority’s powers to collect personal financial information in bulk. Banks now routinely report savings interest directly to HMRC, overseas tax authorities share information on foreign assets held by British taxpayers, and powerful computer systems analyse vast quantities of data in search of potential underpayments.
At the heart of the operation sits HMRC’s powerful Connect system, which draws information from sources including banks, the Land Registry and DVLA records to identify taxpayers who may warrant further investigation. The system reportedly helped HMRC recover billions of pounds in additional revenue last year.
Yet perhaps the most striking example of the state’s growing digital reach affects ordinary people rather than wealthy tax avoiders.
The reach of the system now extends far beyond bank accounts. Selling a few unwanted items online is no longer necessarily a private affair. Platforms such as eBay, Vinted and Etsy are now required to pass information directly to HMRC on users who exceed reporting thresholds, including those making more than £1,700 a year or carrying out more than 30 sales annually. In 2025 alone, data was collected on around four million sellers, up from 1.5 million the previous year. Critics say the result is a society where every transaction, however small, increasingly leaves a digital trail for government databases. What was once a neighbour buying a second-hand bicycle or a parent selling outgrown children’s clothes is now another stream of information flowing into Whitehall’s growing data vaults.
The expansion shows little sign of slowing.
From 2028, banks will be required to provide HMRC with even more frequent updates about customers’ savings interest and National Insurance details. Meanwhile, the tax authority continues to explore new technologies, including voice recognition systems and the wider use of artificial intelligence.
The rise of AI has prompted fresh concern among privacy campaigners.
HMRC has already confirmed that artificial intelligence is being used in certain investigations and has indicated that automated systems will increasingly be used to identify suspected tax evasion and send prompts encouraging taxpayers to review their affairs. The department says such technology will improve efficiency and help staff focus on more complex work.
Critics, however, fear that combining vast amounts of personal data with increasingly sophisticated algorithms risks creating a system in which citizens are constantly monitored, analysed and assessed by automated processes.
Lord Mackinlay, a chartered accountant and former Conservative MP, warned that Britain risks creating hostility between citizens and the state if technology continues to expand unchecked into people’s private financial affairs.
What makes the debate particularly contentious is that, despite HMRC’s unprecedented access to information, significant mistakes continue to occur.
Recent cases have highlighted taxpayers being pursued for tax liabilities based on incorrect savings interest figures, duplicated records and flawed estimates. In some instances, individuals have reported spending months trying to challenge calculations they believed were wrong.
Many complain that while technology has dramatically increased the state’s ability to collect information, it has not delivered the promised improvements in accuracy.
Tax advisers have also raised concerns about the complexity of HMRC’s systems, with some taxpayers finding it difficult to understand how calculations have been reached or how to challenge them.
Campaign group Big Brother Watch has warned that the gradual expansion of government access to financial information could have implications far beyond tax collection.
Silkie Carlo, the group’s director, argued that systems designed to improve compliance risk creating permanent mechanisms for wider state surveillance.
HMRC rejects such criticism and insists its powers are authorised by Parliament, subject to legal safeguards and necessary to ensure the correct amount of tax is paid to fund public services.
Nevertheless, the debate is no longer simply about tax.
It is about how much information a democratic government should hold about its citizens, how that information is used, and what safeguards exist when mistakes are made.
The promise was that more data would create a fairer, more efficient system. Instead, critics argue Britain is drifting towards a future in which the state knows more and more about the lives of ordinary people, while taxpayers face an increasingly difficult task when challenging official decisions.
For them, the question is no longer whether HMRC has become more powerful.
The question is whether the digital state itself has become too powerful.
What do you think? Are these powers necessary to tackle tax evasion and protect public finances, or has the balance between privacy and government oversight tipped too far? Let us know your views.
