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UK indirect tax teams are adopting artificial intelligence faster than their peers in Europe, but they have automated fewer underlying tax processes, according to new research from the Thomson Reuters Institute.
The survey of 230 indirect tax professionals across nine European markets found that 62% of UK teams use generative AI for research or advisory queries, compared with 47% across Europe. It also found that 54% of UK teams plan to develop or acquire AI or generative AI tools in the next 12 to 24 months, versus 39% across the region.
Much of that use is concentrated in lower-intensity tasks. In the UK, 70% of teams use AI to summarise regulatory updates, making it the most common use case. Meanwhile, 44% use it for anomaly detection and error-checking in filings, 42% for predictive modelling for audit risk, and 40% are introducing AI, generative or agentic, to manage regulatory compliance pressure.
That lead in adoption does not extend to process automation. Only 22% of UK teams use AI-assisted tax classification, below the European average of 33%, while 26% have fully automated tax determination, compared with 38% across Europe.
Rates are lower still in reconciliation and e-invoicing. Just 6% of UK teams have fully automated data reconciliation, against 10% across Europe, and 18% have fully automated e-invoicing issuance and receipt, compared with a European average of 24%.
Jas Sandhu Dade, Head of Corporates, Europe at Thomson Reuters, said the pattern reflected stretched teams rather than a lack of interest in AI.
"UK tax teams are not behind on AI - they are ahead of most of Europe on adoption. What they have not had is the capacity to take it beyond research and into the high-volume work," said Jas Sandhu Dade, Head of Corporates, Europe at Thomson Reuters.
"The technology is summarising regulation and checking filings while reconciliation is still being done by hand. This gap will become increasingly difficult to live with as e-invoicing mandates and digital reporting requirements stack up, adding more pressure on stretched resources," Dade said.
Capacity constraints
The findings suggest UK tax departments face a staffing and skills problem as they try to modernise. The top barrier to tax technology investment in the UK was a lack of resources to implement it, cited by 56% of respondents, compared with 43% across Europe.
A shortage of in-house skills ranked second, at 54% in the UK against 43% in Europe. By contrast, data security was the main concern across Europe at 57% but was cited by 42% of UK respondents, placing it behind resources, skills, budget and regulatory uncertainty.
Hiring plans also appear more restrained in the UK. Only 22% of teams are adding headcount to the indirect tax function, compared with 33% across Europe, while 50% plan to upskill existing staff on regulatory and compliance knowledge, below the European average of 62%.
At the same time, UK teams are somewhat more likely to measure the return on their tax technology spending. The survey found that 28% formally measure the return on investment of indirect tax technology, compared with 20% across Europe.
Audit pressure
The report also points to a disconnect between improvements in tax data and teams' readiness to respond to official scrutiny. Among UK respondents, 84% said e-invoicing had improved data quality, making it the most frequently cited benefit by a clear margin.
Yet only 58% said e-invoicing had improved audit readiness. In addition, 22% of UK teams rated responding to audit enquiries as a top-tier challenge, scoring it between eight and 10 on a 10-point scale, a higher share than the European average.
The figures come as electronic invoicing rules continue to spread across Europe. In the UK, 58% of teams are already live or implementing solutions for mandates, with 22% live and compliant in at least one jurisdiction and 36% actively implementing systems for mandates taking effect within 12 months.
Another 28% are planning for mandates due in the next one to three years, while 14% are still monitoring requirements without formal planning. Across Europe, 87% of respondents said their organisation is already live with e-invoicing, implementing solutions for upcoming mandates or formally planning for future requirements.
Wider role
The survey indicates that indirect tax teams are taking on a broader role inside businesses even as routine compliance remains central. In the UK, 78% of teams are measured on filing returns on time and 76% on filing accuracy, while only 50% are measured on involvement in strategic decision-making.
Even so, 34% said their indirect tax function contributes significantly to organisational objectives, and 60% said it had influenced supply chain or operating model decisions in the previous 12 months. That influence sits alongside a notable skills shortfall, with 72% citing gaps in supply chain and operating model expertise, the largest skills gap reported by UK teams.
Looking ahead, 42% of UK respondents expect the function to grow over the next one to two years, while only 2% expect it to shrink. Across Europe, only 28% described their indirect tax function's contribution to organisational objectives as significant, even though many teams are involved in decisions on supply chains, pricing, contracts and regulatory risk.
The survey found one area of particularly low automation across the region: only 10% of European respondents said their organisation had fully automated data reconciliation across systems, even though reconciliation is one of the activities tax teams most want to automate.
According to the report, teams seen as significant contributors were also more likely to adopt AI proactively, engage regularly with senior executives, measure return on investment and use mandate pressure to support broader operational change.