The digital tax system is central to HMRC’s new transformation plan. Announced on July 21, 2025, this ambitious roadmap will simplify tax for millions. Over 50 digital projects aim to modernize how taxes are managed. These include a major PAYE service for 35 million workers and the use of AI to improve efficiency.
New PAYE Service Powers Digital Tax System
In 2025/26, HMRC will launch a new tax system PAYE service. It will allow workers to update income, allowances, and expenses directly online. They can do this using the HMRC app or their personal tax account.
As a result, taxpayers will save time and avoid errors. They can also claim tax relief in one place. Furthermore, HMRC aims for 90% of interactions to be digital by 2030, marking a major shift in tax services.
See the latest PAYE details on GOV.UK.
AI and Automation Driving Digital Tax System
Artificial intelligence will transform the digital tax system experience. AI will guide taxpayers with instant support and summarize call center conversations. It will also detect fraud through voice biometrics, reducing risks.
In addition, automation will replace paper letters with digital messages. By 2028/29, this change should save £50 million per year. These funds equal the cost of hiring around 1,500 nurses, proving how efficiency helps public services.
Strengthening Compliance with Digital Tax System
Fraud and evasion remain serious concerns. Therefore, HMRC will hire 5,500 compliance officers and 2,400 debt staff. A £1.7 billion investment will fund these roles over four years. These efforts target the UK’s £46.8 billion tax gap.
From April 2026, recruitment agencies will be responsible for PAYE tax through umbrella companies. Moreover, a strengthened whistleblower program will reward tips on large-scale tax evasion, especially involving corporations and wealthy individuals.
Read more about compliance measures.
Self Assessment and Inheritance in the Digital Tax System
The digital tax system will also simplify Self Assessment and Inheritance Tax. Agents will soon withdraw clients from Self Assessment using a new online tool. This will speed up tax code updates and reduce paperwork.
Additionally, Inheritance Tax will be fully digital. This change will allow faster submissions and quicker payments. A Digital Disclosure Service will also let taxpayers correct mistakes across all tax categories, improving overall compliance.
Business Benefits in the Digital Tax System
Businesses will gain significant advantages from the tax system. Making Tax Digital (MTD) for Income Tax begins in April 2026 for sole traders and landlords earning over £50,000. By April 2028, it will extend to those earning £20,000 or more.
Meanwhile, HMRC is exploring e-invoicing with the Department for Business and Trade. This system could cut errors and improve cash flow, especially for small firms.
Supporting Tax Agents with Tax System
Tax agents will also benefit from new digital services. They will gain tools to submit client data instantly and track cases online. Furthermore, a dedicated escalation process will handle complex issues quickly.
HMRC is working with advisers and software developers to spot barriers and develop better tools. Regular updates will keep all stakeholders informed about progress.
Tackling Digital Exclusion in the Digital Tax System
While modernization is vital, not everyone can use a digital tax system. Some taxpayers lack internet access or digital skills. Because of this, HMRC will continue offering phone and postal support.
These measures reflect HMRC’s Charter standards. Accessibility and user-friendly design will remain priorities throughout this transformation.
UK Tax Changes in 2025: Impact on Businesses & Individuals
Challenges and Goals of the Digital Tax System
Achieving 90% digital adoption by 2030 will not be easy. The Low Incomes Tax Reform Group highlights barriers such as rural connectivity and limited digital skills. HMRC will address these issues in several ways.
By April 2026, a new software roadmap will show how third-party tools can reduce the tax gap. The Valuation Office Agency will also merge systems with HMRC by 2026, streamlining property tax management.
A Fully Modernized Digital Tax System by 2030
By 2030, HMRC’s tax system will deliver automated, self-serve tools. These will reduce errors, speed up compliance, and detect fraud faster. Taxpayers will enjoy a simpler and more trusted experience.
This transformation balances technology with accessibility. It promises benefits for individuals, businesses, and the UK economy as a whole.
For more insights, visit GOV.UK’s Tax Guide or explore the Department for Business and Trade to understand e-invoicing benefits.
