The tax racket
By Damon Anderson, 22 October 2026. 10 minute read.
The hardest thing in the world to understand is the income tax.
Albert Einstein, according to his accountant. A man who worked out that time bends, and still paid someone to do his return.
Physicists spent nearly two centuries failing to prove that the Navier-Stokes equations, the formulas for how liquids and gases flow, always work. Then last month OpenAI claimed 10,000 of its agents had cracked it in 88 hours; mathematicians are still arguing about it, but solving hard problems now feels like a feature of frontier models.
Yet even in this age of super-intelligence, your company's tax return remains the enigma. Albert couldn't crack it. Neither, so far, can Gemini or ChatGPT. We can calculate it well enough to get the returns filed. Nobody can prove it's right.
I've spent the best part of a year under the bonnet of 400-odd accounting software companies around the world. Software, first in the cloud era and now in the AI era, is chewing through bookkeeping, reporting and the month end at a rate of knots. But try to solve a complicated tax return, and everything quickly feels extraordinarily retro.
Which is odd. Tax is fundamentally arithmetic. Income or sales in, rate applied, number out. So why, in 2026, is it the one corner of finance that software can't seem to finish?
My answer: the maths bit was never the hard part. Tax is the only industry where the state writes the rules, its own tax authority interprets them, and that same authority collects the debt. And if you don't get it right, they can take you to jail, forcibly, with guns.
Every racket starts with the cut
This year the average Brit worked until 6 June, 156 days, before earning a penny for themselves, according to the free-market Adam Smith Institute. That's income tax, National Insurance, VAT, fuel duty, stamp duty, council tax, the lot. Canadians worked until 9 June. In most developed countries it's nearly summer (or winter, if you're down under) before you've paid Mr Big.
And the terms of this set-up are grim. The rules are theirs, the interpretation is theirs, they decide when you've broken them, and they collect the money, with force. Don't pay, and it can take your house. In England you can still be sent to prison over unpaid council tax. In the US, the IRS has its own criminal investigation division.
Any outfit that stomps around in dark suits, muscles you out of half the money you earn, writes its own contract and turns up armed if you don't play ball? Where I come from, that's called the Mafia.
Don't get me wrong. I have no issue with tax, and care a lot about better schools and hospitals. And that's exactly why this winds me up. What gets me is the waste: thousands of people, and fortunes in fees and software, spent just administering the thing, money that could be going on the schools and hospitals instead. This isn't a rant against paying tax (although, between us, I do think we pay far too much). It's about the method: how it's collected, who sets the terms, and why getting it right is still so ridiculously hard.
It's not maths. It's law with maths in it
Accounting has rules. Tax has opinions, with penalties attached.
Every transaction in a ledger is a fact. Tax is what that fact means, and meaning depends on things a bank feed will never tell you. Is it a van or a car? Revenue or capital? Trading, or a hobby that makes money? Same line on a bank statement, three different answers.
And there's a lot to interpret. The UK's Tolley's tax handbooks run to 23,485 pages this year; in 1976 it was 1,626. The US tax code is 4.2 million words and changes hundreds of times a year. Software encodes the rules as they stood the day somebody wrote the code. Tax law is a subscription nobody asked for, renewed annually without your consent.
They had a dream: tax that just happens
In 2020 the OECD's Forum on Tax Administration, where the tax authorities of the UK, Australia and some 50 other countries sit, set out a vision of tax as "a seamless and frictionless process". The ATO's Commissioner, Chris Jordan, laid it out at Xerocon Sydney in 2022: "Put simply, it's a future where tax 'just happens'." At Xerocon, of all places. The cheek!
The logic sounds wonderfully elegant. Every sale, wage and invoice is an economic event. Every economic event is data. Capture it at source and tax is just a calculation. In a perfect world of data, we wouldn't need half this accounting malarkey.
But the self-employed, the landlords and the small businesses don't produce perfect data. Lucy Cohen, who founded Mazuma, the UK's first subscription accountancy firm, at 23 and is one of the sharpest voices on MTD, looked at a fully reconciled ledger earlier this year and found 18% of entries had no matching bank transaction. Tax can only "just happen" when the data "just happens".
Complexity is a business model
Keeping tax messy can be a business model in its own right. For a sense of how far a company will go to protect one, look at Intuit, the company behind TurboTax, in the US.
In 2002 the IRS did a deal with the tax software industry: free filing for most Americans, and the IRS agreed it "will not compete." Inside Intuit, any government attempt to make filing simpler had a name: encroachment. In 2019 ProPublica found TurboTax's free filing page had been coded to keep it out of Google. A $141m settlement with all 50 states followed in 2022, with no admission of wrongdoing.
Then the IRS built its own free tool, Direct File. In 2025 it accepted 296,531 returns, and 94% of users surveyed rated it excellent or above average. Then, lo and behold, it was switched off for 2026; the Treasury Secretary said the private sector can do a better job. Intuit and H&R Block spent a record $7.1m on federal lobbying last year.
I won't call that regulatory capture, because I don't fancy waking up with a horse's head in my bed. But check out Hasan Minhaj's Patriot Act episode on Netflix, "Why Doing Taxes Is So Hard". It's 26 minutes long. Make your own mind up.
Meanwhile, in the UK
HMRC doesn't have its version of Intuit darkening its doorways. What it does have is Making Tax Digital, a programme that requires VAT-registered businesses (since 2022) and, from this April, sole traders and landlords earning over £50,000 to keep digital records and file through approved software, most of them every quarter. In effect, it made the private sector the front door to the tax system.
HMRC's finder now lists 173 of those front doors. Each one passed HMRC's tests, which check the software can talk to HMRC, not that the numbers are right. HMRC is upfront about it: it "does not recommend any product or software provider." A Freedom of Information request reported by AccountingWEB found only 136 products had filed a live quarterly update by the end of August, against 165 on the list by early October. Meanwhile, HMRC has stopped accepting new software for this tax year while it revises its access model, so that listed products "meet the required standards".
In March it also closed its own free service for filing company accounts and tax returns, and Xero now sells an add-on to the companies it left behind. No matter your country, the theme is the same. The state steps back, software steps in, and the bureaucracy in the middle moves like a swimmer in treacle, run by governments that rarely think past the next election.
Why the cloud ducked it
The cloud ledgers ate desktop accounting. They never really ate tax. A ledger is a ledger in Austin, Leeds or Auckland, but tax gets rebuilt in every country, every year, and a wrong return is a penalty letter with your client's name on it. The incumbents, IRIS, CCH, Thomson Reuters and the rest, are private equity cash machines with every reason to keep it that way.
God knows I tried to change all that myself. When I was leading accounting and product for Xero UK, I led the acquisition of Instafile, on a mission to make tax beautiful. We announced Xero Tax at Xerocon London in 2019. Seven years on, it does corporation tax, accounts and personal tax for partners, and partnership returns are still on the roadmap. A little disappointing, really. Another real opportunity to give people choice, diluted by big-company stasis.
Yes, tax is a job for AI. If it's done right
Tax is the perfect AI problem and the worst one. Perfect, because it's language: tens of thousands of pages of it, and large language models eat text for breakfast. Worst, because the answer has to be right, and the same every time you ask.
The AI is not gonna be the one that gets in trouble. You are.
The only serious, well-considered players separate the technology thoughtfully. A language model reads the law and reasons about the facts; a deterministic engine does the sums and shows its working. Syntax in the UK calls it "logic over LLMs." Basis in the US has shown an agent completing a partnership return.
- Category
- Tax Intelligence / Research
- Founded
- 2025
- Built for
- SME, Mid-Market
- Markets
- UK
In the A to Z, the tools we track for UK tax filing specifically score a disappointing 1 out of 5 on AI maturity on average. Tax research tools do little better, at 2.2. The AI is reading the tax law. It isn't filing the return yet.
Why the racket remains in 2026
A few weeks ago I wrote about the clocks running on this profession. The capability clock is fast, and everyone watches it. The regulatory clock moves at the speed of insurers, professional bodies and governments. Tax is the purest example of the slow clock there is.
Einstein couldn't crack it. AI probably won't either, and not because it can't be done. The racket protects itself. Too much money swilling around the corridors of Washington. Too much bureaucracy in Whitehall. Too many of us, me included, earning a living from it being hard. When the family that runs the neighbourhood also writes the rules, nobody changes them in a hurry.
The Empire Strikes Back
The books-to-tax dream is (slowly) happening. Accrual, an AI tax platform for US firms, is buying Puzzle's AI-native ledger. Xero now sells accounts and tax filing straight to companies. Bit by bit, the record-keeping and the filing are ending up in the same system, built by software companies, not tax authorities.
The tax authorities have noticed. They want the private sector to do the grunt work and they've long had the big incumbents comfortably onside. But a new wave is coming, AI-native and moving faster than any of them. And in tax, the authority holds the keys to the pipes: API access in the UK, e-file authorisation in the US, the ATO's software framework in Australia. HMRC's pause shows those keys can be taken back.
So now they're working out how to verify what all this software actually does. Sounds familiar; that's part of the A to Z service! HMRC promises a new access model by early 2027, and it'll be fascinating to see what "trusted" turns out to mean. The winners won't necessarily have the best model. They'll be the ones the tax authority trusts to plug in. What I'm watching is whether the old influence survives a crowd. When dozens of AI vendors can prepare and file a return, does Intuit still have the ear of government, or does the lobbying money stop buying what it used to?
It was the regulatory clock that stopped tax just happening in the cloud era, and AI moves faster still. "Does it have AI?" isn't the question any more. It's "does it give me everything I need to confidently sign?" The maths, the reasoning, the audit trail, and a connection the IRS, HMRC or ATO will actually accept.
So ask your tax software provider why they aren't using any of this, because few are. Then watch what your tax authority does next. It'll tell you whether the racket is opening up or closing ranks.
Chop chop, HMRC.
Damon