AI generated receipts and expense claims

A receipt made with an AI image tool for a cost that never happened, or for more than was paid, is a false document. Using it to claim tax relief or VAT is a deliberate inaccuracy, and because the fake receipt hides the error HMRC can treat it as deliberate and concealed, with a penalty of up to 100% of the extra tax. It can also be a criminal offence, and employers who reimburse expenses need checks that do not rely on the receipt image alone.

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Why are AI generated receipts a concern for accountants?

Image generation tools can now produce a convincing picture of a till receipt, taxi slip or hotel bill from a short text prompt, complete with a plausible logo, date and VAT figure. ICAEW has reported that AI powered expenses fraud is on the rise and has published an article on how to spot an AI generated receipt.

The risk falls in two places. Employees can submit fake receipts to their employer for reimbursement, and self employed people or company directors can use them to support expense claims in their own accounts and returns. In both cases the receipt is often the only evidence anyone looks at, which is why a good fake works. For a general guide to keeping receipts electronically, see digital receipts and records.

What records does HMRC expect for business expenses?

The record keeping rules assume records are genuine. Self employed people must keep records for at least 5 years after the 31 January submission deadline for the return. Companies must keep accounting records, including receipts for money spent, for six years from the end of the last financial year they relate to, and longer in some cases, such as where HMRC has opened a compliance check. GOV.UK says a company can be fined £3,000 by HMRC, or a director disqualified, if accounting records are not kept.

Employers must keep PAYE records, including taxable expenses and benefits, for 3 years from the end of the tax year they relate to, and HMRC may charge a penalty of up to £3,000 if full records are not kept. VAT registered businesses must keep VAT records for at least 6 years and need a valid VAT invoice to reclaim input VAT. See HMRC record keeping penalties.

HMRC has also tightened evidence for employees claiming their own expenses. From 14 October 2024 it has required supporting evidence before it progresses PAYE expense claims, including receipts for hotels and meals that show the date and the name of the hotel or restaurant. More on this is in employment expenses and form P87.

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How does HMRC penalise a claim based on a fake receipt?

Inaccuracy penalties depend on behaviour. HMRC factsheet CC/FS7a describes a deliberate inaccuracy as one where the person knew the return or document was wrong when it was sent, and gives overstating expenses as an example. Deliberate and concealed means the person also took active steps to hide the inaccuracy, and HMRC’s own example is creating a false invoice for a stock purchase that never happened. A fabricated receipt fits that description closely.

Behaviour	Unprompted disclosure	Prompted disclosure
Reasonable care	No penalty	No penalty
Careless	0% to 30%	15% to 30%
Deliberate	20% to 70%	35% to 70%
Deliberate and concealed	30% to 100%	50% to 100%

Percentages are of the potential lost revenue. Only careless penalties can be suspended; HMRC says it cannot suspend penalties for other behaviour. HMRC may also publish details of people who deliberately got their tax affairs wrong, though not where they received the maximum reduction for disclosure. For how HMRC decides that behaviour was deliberate, see what deliberate inaccuracy means.

Can a fake receipt be a criminal offence?

Yes. Under section 1 of the Fraud Act 2006, fraud includes fraud by false representation, and the maximum sentence on conviction on indictment is 10 years’ imprisonment, a fine or both. Section 17 of the Theft Act 1968 makes it an offence, with a view to gain or intent to cause loss, to dishonestly falsify a record or document made or required for an accounting purpose, or to use one known to be false or misleading. The maximum sentence on indictment is seven years.

An employee who submits a fake receipt to an employer may face disciplinary action as well as criminal exposure. A business owner who uses one to reduce tax faces HMRC civil penalties and, in serious cases, criminal investigation.

Who is responsible when an employee submits a fake receipt?

The employee who made the receipt is responsible for the fraud. The employer still has its own tax position to protect. Since 6 April 2016 the exemption for paid and reimbursed expenses has removed the need to report many expenses, but it only applies where the employer is satisfied the expense would be fully covered by the exemption. A reimbursement for a cost that never happened is not covered, so the employer may need to correct its PAYE or expenses reporting once it finds out. See the paid and reimbursed expenses exemption.

If the business has also claimed a deduction or reclaimed VAT on the fake cost, its own return is wrong. HMRC says that where you ask an employee or adviser to act for you, you must do everything you reasonably can to prevent inaccuracies, or a penalty may be charged. The failure to prevent fraud offence, in force since 1 September 2025, applies to large organisations where an associated person commits fraud for the organisation’s benefit; an employee inflating their own expenses is defrauding the employer, so it is a different risk. See failure to prevent fraud.

What controls help employers catch fake receipts?

HMRC’s guidance on checking systems for bespoke scale rate payments is a useful model. It says someone other than the employee must check that payments relate to genuine business travel, that checks should be regular, cover a random sample of staff and their receipts, and come without advance notice, and that missing receipts should be monitored. From 6 April 2019 employers paying benchmark scale rates no longer need to check spending, but must ensure the qualifying travel took place and that nobody knows or suspects it did not.

Pay business costs on company cards where possible, so the bank record is the primary evidence.
Match claimed receipts to card or bank transactions and to diaries or travel bookings.
Ask for the supplier’s emailed receipt or invoice rather than a photo for larger items.
Check supplier VAT numbers on invoices used to reclaim VAT.
Look for duplicate amounts, round figures and claims just under approval limits.
Set out in the expenses policy that fabricated receipts are gross misconduct.

Small businesses can build these into wider internal controls.

What if a fake receipt has already been used?

The table shows why speed helps. An unprompted disclosure of a deliberate inaccuracy has a minimum penalty of 20%, against 35% for a prompted one. For deliberate and concealed behaviour the minimums are 30% and 50%. Going to HMRC before it comes to you keeps the floor lower, and an adviser can help prepare the disclosure.

Illustration only. A self employed consultant paying 40% income tax uses an AI tool to create £2,000 of fuel and hotel receipts and claims them in her return. HMRC opens a check and finds the receipts are fake. The extra tax is £800, ignoring National Insurance and interest. Treated as deliberate and concealed with prompted disclosure, the penalty falls between £400 and £800, on top of the £800 tax, and the case could be referred for criminal investigation.

Frequently asked questions

Is an AI receipt acceptable if the expense was real but the original was lost?

No. Creating a document that looks like a supplier’s receipt is still a false record. If records are lost, GOV.UK says you should do your best to provide figures, using estimated or provisional amounts, and tell HMRC which you used.

Can HMRC suspend a penalty for a fake receipt?

No. HMRC can only suspend penalties for careless inaccuracies. Deliberate and deliberate and concealed penalties cannot be suspended.

Do employees need receipts to claim expenses from HMRC?

Usually. Since 14 October 2024 HMRC has required evidence before it progresses PAYE expense claims, with receipts expected for items such as subscriptions, hotels and meals. Flat rate expenses need no evidence.

Does the record keeping penalty apply as well?

It can. HMRC’s manual says a penalty of up to £3,000 may be charged for each failure to keep or preserve adequate records, but that it will only be sought in the more serious cases.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 6 November 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.