Is tax compliance the next big opportunity in financial technology?

The financial technology sector is buzzing with new energy, particularly in addressing real challenges for small businesses. Starling Bank’s recent acquisition of Ember, a tax and bookkeeping platform, is a notable move that highlights the growing focus on tax compliance solutions.

It’s encouraging to see more players recognising the potential to simplify tax processes for SMEs - a space that’s been ripe for innovation. This trend signals an industry-wide shift toward leveraging technology to ease the tax burden, paving the way for a more streamlined experience for business owners.

It’s interesting to see tax compliance now being hailed as a major growth area in financial technology. Years ago, it was clear that manual or semi-manual tax processes were inefficient and prone to errors. That realisation drove the creation of AI-powered solutions designed to automate and simplify compliance. The result? Systems that can estimate VAT, prepare tax filings, calculate corporation tax, manage invoices, and categorize expenses with minimal human intervention. This kind of automation allows small businesses to focus on growth rather than paperwork, all while keeping compliance costs manageable.

The broader trends in financial technology are compelling. Post-pandemic, SMEs face rising costs, supply chain issues, and economic uncertainty, making efficient financial management critical for survival. In the UK, the expansion of Making Tax Digital (MTD) requirements by 2026 is accelerating the push for digitisation. 

Starting April 2026, self-employed individuals, sole traders, and landlords with UK self-employment or property income over £50,000 (based on 2024/25 tax year returns) must keep digital records, submit quarterly updates to HMRC, and file a year-end Self-Assessment declaration by 31 January. This affects around 4 million SMEs, with thresholds dropping to £30,000 in 2027 and potentially £20,000 by 2028. 

AI is central to this shift, not just automating tasks but also providing insights like cash flow forecasts or early tax deduction identification. The industry is moving toward holistic platforms that integrate payments, compliance, and analytics, powered by machine learning that improves with scale.

However, building AI-powered tax compliance solutions comes with significant challenges. For any financial technology company entering this space, including those integrating platforms like Ember, here are five key hurdles to navigate - issues that have shaped the journey of many in the industry, including us at ANNA….

The Regulatory Landscape Is Constantly Evolving
Tax laws, such as HMRC’s updates to VAT or MTD requirements, change frequently. AI systems must be adaptable to stay compliant without disrupting users. This demands close collaboration between compliance teams and developers to anticipate policy shifts. Failure to keep up can lead to errors, audits, or penalties for SMEs, making agility a top priority.

Accuracy in AI Calculations Is Non-Negotiable
Tax systems are unforgiving—a single miscalculation, like an incorrect corporation tax estimate or misclassified expense, can lead to penalties or audits. Achieving high accuracy requires training AI on vast datasets of transactions, yet edge cases, such as complex international deals, remain challenging. A hybrid approach—using AI for efficiency and human oversight for anomalies—is often necessary to ensure precision across diverse scenarios.

Data Security and Privacy Are Critical
SMEs entrust financial technology platforms with sensitive data, and regulations like GDPR demand robust protections. Scaling to thousands of users amplifies this challenge, requiring secure architectures and regular audits. A single breach can erode trust, so transparency in data practices is essential to maintain user confidence, especially when integrating new tools across platforms.

Convincing SMEs to Adopt AI Is a Hurdle
Many small business owners rely on traditional accountants or spreadsheets and may be skeptical of AI solutions. Overcoming this requires intuitive interfaces and clear demonstrations of value, like reducing tax filing time to minutes. Adoption can be slow in conservative sectors, so providing educational resources and tangible benefits is key to building trust and driving uptake.

How do we scale AI ethically, while fostering collaboration?
As more players enter, there’s a risk of fragmentation—disparate platforms with inconsistent standards could confuse users. Advancing AI also depends on shared, anonymised data to refine models. Industry-wide teamwork, perhaps through financial technology associations, can establish benchmarks and best practices, ensuring reliable, user-friendly compliance tools. A collaborative approach strengthens the ecosystem for everyone.

The growing focus on tax compliance, as evidenced by recent industry moves, underscores a powerful truth: AI can transform SME finance. The challenges are significant, but they also present opportunities to innovate and deliver value. For small business owners, AI-driven tools can turn tax compliance from a burden into a manageable task. The industry is at an exciting juncture, and continued innovation will make tax less daunting for SMEs everywhere.