When Nicole Ratcliffe first sat down to work out how to pay her tax bill, she was lost. She runs two businesses \u2014 one as a sole trader and one as a limited company, which meant that her finances were \u201ca complete and utter mess\u201d.<\/p>\n
\u201cIt was so complicated, and I didn\u2019t know where to start to sort it all out. I\u2019m in a bit of a transition period with the business so it\u2019s become a bit complex,\u201d said Ratcliffe, 44, a freelance infant sleep consultant. <\/p>\n
\u201cI asked an accountant how much it would cost and they said \u00a31,000, but I only made about \u00a37,000 last year so it would have been about 15 per cent of the money coming in. I don\u2019t have that money to spend on an accountant.\u201d<\/p>\n
In the end Ratcliffe turned to artificial intelligence<\/a> (AI) for help \u2014 joining the millions who have chosen to use AI tools such as ChatGPT for help with their finances. But how can you seek tailored financial advice from a computer, and what are the risks?<\/p>\n Ratcliffe had already asked ChatGPT about her blood test results and requested advice on what she should ask her doctor, as well as using it to look for cheap days out near where she lives in Manchester.<\/p>\n She said: \u201cI didn\u2019t have the time to trawl through Google and find contradictory bits of information or stuff that wasn\u2019t relevant to me. So I laid out my situation and asked ChatGPT to explain what I could declare as a sole trader versus a limited company and what taxes I might have to pay.\u201d<\/p>\n \u2022 Why it isn\u2019t too late to invest in AI<\/a><\/p>\n ChatGPT explained how much she could pay herself each month without hitting the income tax and national insurance threshold, as well as why she could end up with a corporation tax bill. <\/p>\n Ratcliffe had hit a wall with HM Revenue & Customs when she wasn\u2019t able to fill out certain forms online. She copied and pasted the message she was getting from HMRC\u2019s website into ChatGPT and it told her that she needed additional reference numbers from the government.<\/p>\n \u201cI was getting really stressed because I couldn\u2019t work out why it wasn\u2019t working. I pasted it into ChatGPT and said, \u2018HMRC is saying this\u2019, and it told me that it was because I didn\u2019t have the relevant code. Now I\u2019m just waiting for the tax office to send me that number,\u201d she said.<\/p>\n According to Finder, a comparison site, 40 per cent of people have used generative AI tools, such as ChatGPT, Gemini or Copilot, for financial advice. A further 25 per cent were considering it.<\/p>\n Polling by the tax filing service Taxfix found that more than half of those required to fill out self-assessment forms were planning to use AI for help this year, saying it was faster, more convenient and cheaper.<\/p>\n As you might expect, it was more common among younger people. Some 65 per cent of those aged 18 to 28 had used AI for money help, compared with 28 per cent of those aged 45 to 60 and just 14 per cent of baby boomers (61 to 79).<\/p>\n Budgeting help was the most popular reason for turning to AI, with 19 per cent of users saying that making a personal budget had been their primary goal. Other common requests were for advice on starting or managing a side hustle, improving a credit score, savings advice and investment tips.<\/p>\n \u201cAI has been a brilliant assistant in removing much of the mundane and laborious work from tax returns and personal finance research,\u201d said Daniel Roper from Taxfix. \u201cBut while I\u2019d encourage everyone to lean on AI, it\u2019s important to remember that it isn\u2019t infallible.\u201d<\/p>\n How to avoid an AI disaster<\/p>\n In theory AI chatbots can help you with any aspect of your personal finances. The most popular tool is ChatGPT, which is owned by the research company OpenAI. It is free to use, but you can buy \u201cPlus\u201d or \u201cPro\u201d versions for \u00a320 or \u00a3200 a month that offer more features. Other AI options include Gemini and Copilot.<\/p>\n You start the conversation by asking a question \u2014 a \u201cprompt\u201d in AI lingo \u2014 and the bot will respond, based on everything it has \u201cread\u201d during its \u201ctraining\u201d. For extra or more recent information, the chatbot searches the internet.<\/p>\n \u201cAI can take the legwork out of day-to-day money management. You should never share sensitive details like account numbers, but you can provide summaries of your spending and income and it can analyse patterns and build budgets around them,\u201d said Alex Whitelaw, an AI consultant.<\/p>\n \u201cThis could be as simple as creating a monthly budget, or as detailed as mapping out your year with holidays, birthdays and larger expenses built in.\u201d<\/p>\n Experts in using AI chatbots say that the more you put in, the more you get out \u2014 the more detail and context you provide, the better equipped the bot is to give you a useful response.<\/p>\n Edward Morris, who runs Enigmatica, an AI consultancy, suggests thinking about four things when asking ChatGPT something: role, context, tasks and framework.<\/p>\n \u201cFor example, you could say, \u2018You are my personal money mentor. I am 29, earning \u00a338,000 a year with \u00a36,000 in student debt, \u00a31,500 in savings and a goal of buying a house in five years. Analyse my situation and give me three concrete steps to achieving this. Show me what happens if I save \u00a3300 a month compared with \u00a3500.\u2019\u201d<\/p>\n The pros and the pitfalls<\/p>\n There are plenty of positives to using AI as an adviser. It is constantly available, so it can help you when you need to make a decision or when it suits you, rather than having to make an appointment, and it is free to use.<\/p>\n It can also help to build the confidence of those who would never have traditionally sought any form of financial advice.<\/p>\n Morris said: \u201cFar too many people avoid financial advisers because they feel embarrassed about their circumstances. There\u2019s no judgment with ChatGPT \u2014 no smarmy comment or anything that makes you feel bad.\u201d<\/p>\n This is a big reason that Tina Chummun likes using ChatGPT as a soundboard for her financial problems. She started to use it when she was out of work and needed breathing room on her mortgage payments. She was struggling to fully understand a letter from her lender, so uploaded it to ChatGPT, which explained it to her in simple terms.<\/p>\n