HMRC IT budget hits £1.1bn as MTD quarterly deadline arrives
HMRC's IT function carried a budget of £1.1 billion in the financial year ending March 2026, a 17 per cent rise year-on-year, according to data obtained under the Freedom of Information Act and analysed by the Parliament Street think tank. The figures arrive as the tax authority's Making Tax Digital for Income Tax programme reaches its first quarterly submission deadline on 7 August 2026.
The FOI response shows that HMRC's IT budget for FY 2025-26 stood at £1,106,756,452, up from the prior year. Staff salary costs within the IT function rose from £189.7 million to £202.4 million, despite only a marginal movement in headcount. The IT workforce numbered 3,985 three years ago, fell to 3,758 two years ago, and recovered to 3,879 in the most recent full-year period, suggesting the pay increase reflects salary inflation and skills-market pressure rather than significant workforce expansion.
Making Tax Digital goes live
The August 7 deadline marks the first substantive test of HMRC's digital infrastructure at scale. From that date, sole traders and landlords with self-employment or property income above £50,000 are required to submit quarterly income and expenses updates through MTD-compatible software. HMRC estimates the requirement affects more than 864,000 individuals in this initial cohort, with the threshold set to broaden in subsequent phases.
Kenny MacAulay, chief executive of accountancy software firm Acting Office, said the scale of investment was encouraging but needed to translate into tangible outcomes. "Rollouts such as Making Tax Digital will be a good test of this investment on a national scale, with the aim of improving the tax return process, rather than creating a bigger bill for the taxpayer," he said. MacAulay also called for HMRC to move beyond training and pilots into real AI implementation, noting that the accountancy sector was prepared to follow public-sector leadership on automation.
Separately, an earlier FOI found that HMRC put 25,549 staff through AI training using Microsoft 365 Copilot in the past year. The department also reported delivery of 80,000 digital, data and technology courses through its Digital Academy, of which more than 11,000 were AI-focused.
Market and regulatory context
HMRC's investment trajectory sits within a broader push by UK government departments to modernise legacy tax and public-finance infrastructure. The MTD programme has experienced repeated delays since its original 2019 target date, with the income-tax strand finally entering live operation this year following a phased mandate. Compliance software vendors including Sage, QuickBooks, FreeAgent and a range of specialist MTD-bridging tools have spent several years preparing for this moment, and the August deadline represents the first real-world stress test of both HMRC's back-end systems and the ecosystem of third-party software that feeds them.
The £1.1 billion figure also invites comparison with wider UK public-sector IT spending patterns. Government digital programmes have historically struggled with cost overruns and delayed delivery; the combination of a rising budget, a live mandate and a compressed implementation window will draw scrutiny from the National Audit Office, which has previously reviewed HMRC's digital transformation progress. How reliably the quarterly submission pipeline handles 864,000-plus filers at peak will be closely watched by both the accountancy profession and parliamentary committees overseeing HMRC's performance.