AI tools have exploded into everyday business life. One minute you’re hearing about them on LinkedIn, the next you’re wondering whether they could save you hours of admin, help you write content, or streamline your processes.
And honestly? They probably can.
But – and it’s a big but – using AI in your business isn’t as simple as signing up and typing in a prompt. There are real legal and ethical responsibilities that come with it. Many business owners don’t realise this until they’re already knee‑deep in AI tools.
So let’s walk through what you actually need to think about before you rely on AI in your business.
First up… do you actually know the tool you’re using?
It’s tempting to jump straight in, but a little detective work goes a long way. You want to know who built the AI tool, whether they’re reputable, and whether the system is known for being accurate and reliable.
If you’re planning to put any personal data into it – even something as simple as a client’s name – you need to check whether the tool is compliant with UK GDPR.
Does the tool use your inputs to train its models?
Some do. Some don’t. Some let you opt out or require a paid licence.
If you’re handling client information, this matters more than you might think. Especially if you are bound by confidentiality obligations. When you input data into an AI tool that uses it for training, you’re essentially sharing that information with the provider and potentially allowing it to influence outputs for other users.
That could put you in breach of your duties of confidentiality, your professional obligations, or UK GDPR. Even if the data seems anonymised, there’s still a risk. If you can’t guarantee where that information goes or how it’s used, you could be exposing your clients – and yourself – to unnecessary legal risk.
If you’re processing personal data, you may need a DPIA
A Data Protection Impact Assessment sounds intimidating, but it’s really just a structured way of asking: “Could this tool create risks for the people whose data I’m using?”
If you work in healthcare, education, psychology, or any field involving special category personal data such as health data, criminal offence data, race and ethnic origin, a DPIA is a legal requirement. Even if you process personal data outside of these categories, a DPIA is required where the processing is likely to result in high risk, which often applies to AI.
It’s an internal compliance document that helps you map out what data you’re using, why you’re using it, how the AI tool processes it, and what safeguards you need. It also gives you a clear record if the ICO ever asks how you assessed the risks.
Read the AI Tool’s T&Cs
I know. Nobody wants to. But with AI tools, the small print matters.
You need to understand who owns the copyright in the outputs; how long the provider keeps your data; whether humans can access what you input; where the data is stored; whether the tool restricts your type of business use and what disclaimers the provider makes about accuracy.
If you rely on AI for client work, you need to know exactly what you’re allowed to do with the outputs and what the provider is allowed to do with your inputs. Some AI providers claim ownership or a licence over anything you create using their tool, which could affect your ability to deliver work to clients or meet your own contractual obligations.
If the provider stores data outside the UK or EU, you may need additional safeguards in place to comply with UK GDPR. The T&Cs may include broad accuracy disclaimers, but whether or not that is the case, relying on AI-generated content without proper oversight could leave you exposed.
Be transparent with your clients
If you’re using AI as part of your service delivery, your clients need to know. Not in a scary, over-technical way. You just need to be honest and upfront about what’s happening behind the scenes.
That means updating your client terms to cover the important stuff: which AI tools you’re actually using; what you’re using them for; and whether any of their data gets shared with the AI provider. You’ll also want to explain how that data is processed and protected and reassure them that a human (that’s you) always reviews the outputs before anything goes out the door.
This isn’t an AI‑specific legal requirement, but it flows from existing UK GDPR transparency obligations where personal data is processed using AI‑enabled tools. And if you’re providing a service to individuals or organisations in the EU, then it’s also a requirement of the EU AI Act. But beyond the legal box-ticking, it’s also just the right thing to do. It builds trust, shows you’re professional and ethical, and signals that you take transparency seriously. Your clients will respect you more for it.
Your privacy policy needs an update too
Your privacy policy should reflect your AI use in plain English. That means explaining how the AI tool fits into your business; what data it processes; and the legal basis for doing so. You’ll also need to cover your clients’ rights; whether the tools you use prevent the models from training on the data you input; and how you minimise data – things like using initials instead of full names, for example.
If you’re putting special category data into an AI system (that’s data like health information, ethnicity, religious beliefs, or anything similarly sensitive), you need to be really careful. In many cases, you must get explicit consent from your clients. And when you ask for that consent, you need to explain exactly how the AI tool is going to use their data. Don’t forget that your clients can change their minds. They have the right to withdraw consent at any time, and you need to make that easy for them to do.
If you work with associates or a team, get everyone aligned
AI use can get messy fast if everyone is doing their own thing. You need to make sure your employees, contractors and associates are all aligned.
Everyone in your organisation needs to be using the same tools and in the same way. You also need to ensure that everyone understands data minimisation and when consent is needed. It is advised to get an internal AI Policy in place, and your contractor/associate agreements should include an AI clause.
Don’t just set it and forget it – you need to supervise how AI is actually being used day-to-day. Keep an AI Usage Log, and then periodically check the AI tools and the market for new and better versions.
If your employees or contractors misuse AI tools then you could be the one liable – unless your contracts protect you. Under UK law, employers can be held vicariously liable for their employees’ actions in the course of employment, and you may also be liable for contractors’ breaches depending on how your agreements are structured.
This means if someone in your team puts sensitive client data into an unauthorised AI tool or uses AI in a way that breaches UK GDPR or confidentiality obligations, you could be facing regulatory action, client complaints, or even legal claims – even if you had no idea it was happening.
Insert AI clauses into your contracts so you have recourse if someone breaches AI usage within your organisation. These clauses should set out clear usage rules, require compliance with your AI policy, include indemnities for unauthorised use, and make AI-related breaches grounds for termination where appropriate. It’s about protecting your business while making expectations crystal clear.
Talk to your insurance provider
Many professional indemnity policies require you to tell them if you introduce new tools that could increase risk. AI definitely counts.
It’s worth checking whether your current policy covers AI use. You may need to increase your cover. A quick conversation now can save a lot of stress later.
Have a plan for security breaches
If the AI platform suffers a breach or outage, you need to know what you’ll do. Your internal process should cover how you investigate; who takes responsibility; when you notify clients and when you should notify the ICO. This can sit neatly inside your Data Protection Policy.
Keep an eye on the law – it’s changing fast
AI regulation is evolving at speed. Aside from the EU AI Act (for any use of AI tools on individuals or organisations residing in an EU member state), there is still no AI legislation in the UK. For now the main legislation is the UK GDPR – protecting any data you input into AI tools.
However, the UK is moving towards stronger AI governance, but we’re not there yet. The UK AI Regulation White Paper sets out the government’s preferred approach – a light‑touch, principles‑based framework focused on safety, transparency, fairness, accountability and the ability to challenge AI‑driven outcomes. It isn’t law, but regulators like the ICO are already using it to shape their expectations of businesses.
Alongside this, the Artificial Intelligence (Regulation) Bill (2025 draft) has been introduced in the House of Lords. It’s a Private Members’ Bill, so it may not pass in its current form, but it signals the direction of travel – named AI officers, clearer transparency duties, disclosure of training data, and independent audits for high‑risk systems. Together, they show that businesses should start preparing now for a future where AI use must be more transparent, accountable, and well‑documented.
A final checklist
- Always read the AI software provider’s T&Cs and don’t breach them.
- Make sure anything you input into an AI platform is your own original work. If not, make sure you have permissions from the copyright owner to use their content in this way.
- Check if the AI platform can re-use your input material. If so, are you ok with this? If using other people’s copyright in your input, again you need to consider whether you have their permission to use their content in this way.
- Will you be inputting personal data into the AI platform to create your content? If so, make sure you are GDPR compliant and have updated your Privacy Policy.
- Be wary of how you use AI-created content: do you actually own it? Can you use it for your intended purposes? Are there any limitations or restrictions on use?
The best advice is to keep up to date with developments, avoid using others’ content and think twice before inputting data you would rather not be used, again and again, by the AI world! If you aren’t sure – it is always best to check. Our dedicated commercial team will be happy to help, with the most up-to-date advice.
Still have questions? Seek advice!
AI can be an incredible asset for your business, but only if you use it responsibly. A little upfront work protects your clients, your reputation, and your legal compliance.
We’ve been working with clients across different sectors to update their client terms and conditions, privacy policies, and internal AI policies so they can use AI tools confidently and in compliance with data protection laws. It’s not about ticking boxes for the sake of it. It’s about making sure you’re transparent, compliant, and protecting both your business and the people you work with. If you’re using AI (or thinking about it) and you’re not sure whether your legal bits are up to scratch, we’re here to help. Contact us for more information on 020 8944 5290.