Written by Lyndsey Williams

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96% of UK Charities Are Now Rationing Services. Here’s Where the Money Is Actually Going

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HMRC Is Using AI to Scrutinise Charities’ Finances. Are Your Records Ready?

Jul 28, 2026

Charity volunteer thinking ahead of a compliance review

Charities have always known that HMRC could ask questions about their finances. What has changed is how HMRC is finding the questions to ask. HMRC has rolled out structured risk reviews across the charity sector, powered by its Connect analytics system, which draws on tax filings, public records, and dozens of other external databases to flag inconsistencies. The aim is to identify underpaid tax and recover lost revenue, but the practical effect for charities is a much closer, faster look at their financial data than in previous years.

For charities, that means the gap between looking fine on paper and holding up under automated cross-referencing matters more than it used to. A discrepancy between a Gift Aid claim and a filed set of accounts, once something a human reviewer might miss, is exactly the kind of pattern automated analytics is built to catch.

Why This Matters More for Charities Than It Might Seem

Charities already operate under a level of public and regulatory scrutiny that most businesses do not face. Trustees are personally accountable for financial oversight, and the Charity Commission’s own chief executive has publicly raised concerns about the quality of AI-generated funding applications now landing with the regulator, a sign that AI’s influence on the sector is running in both directions. That creates an unusual dynamic. Charities are being asked to demonstrate stronger governance and financial control at the same time as the tools reviewing their submissions are getting faster and more capable of spotting inconsistencies.

Where the Gaps Usually Sit

In most charities, the underlying financial data is not wrong. It is scattered. Restricted fund records sit in one spreadsheet, Gift Aid claims in another, and supplier invoices in a folder that only one person really understands. None of that shows up as fraud or dishonesty. It shows up as inconsistency, which is precisely what automated risk reviews are designed to flag.

Consistent records start with a consistent process. Automated purchase-to-pay workflows create a clear, exportable audit trail, so your financial data holds up under scrutiny, automated or otherwise.

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Getting Ahead of an Automated Review

The charities best placed to handle this shift are not necessarily the largest or best-resourced. They are the ones whose financial processes already produce a consistent, connected record, so there is nothing to reconcile when a question comes in. That means every invoice, approval, and payment following the same workflow, with a clear record of who approved what and when, rather than relying on institutional memory to explain a decision made eighteen months ago.