HM Revenue & Customs operated with an IT-function budget of more than £1.1 billion during the last financial year, according to Freedom of Information figures supplied to the Parliament Street think tank, as its Making Tax Digital programme reaches its first compulsory quarterly reporting deadline.

The figures put the 2025–26 budget at £1,106,756,452, representing a reported increase of 17 per cent from the previous financial year. Salaries within the function rose from £189,713,765 to £202,442,835, while staffing increased from 3,758 to 3,879.

The original FOI response has not been published alongside the supplied analysis, so the figures should be treated as reported departmental budget data rather than independently verified expenditure. A budget records the resources assigned to a function, which may differ from the amount ultimately spent or the cost attributed to individual programmes.

The scale nevertheless offers useful context for Making Tax Digital for Income Tax, which became mandatory in April for sole traders and landlords with qualifying income above £50,000. More than 864,000 people are initially in scope and must send their first quarterly update through compatible software by 7 August.

The first quarter tests the service chain

The update covers income and expenses for the opening three months of the tax year, usually from 6 April to 5 July. Taxpayers using calendar quarters can instead report the period from 1 April to 30 June, but both groups face the same August deadline.

Quarterly updates are summaries produced from digital records rather than complete tax returns, and taxpayers do not need to make year-end accounting adjustments before sending them. The annual Self Assessment timetable remains in place, while the quarterly process gives taxpayers an evolving estimate of their eventual bill.

Because submissions must pass through HMRC-recognised commercial software, the service depends on more than the department’s own systems. Accounting platforms, bridging products, application programming interfaces, identity checks, agent authorisations, and HMRC’s internal infrastructure must operate together across a large and diverse user base.

That creates a distributed form of delivery risk. An accountant may prepare accurate records but encounter an authorisation problem, while a software supplier can connect successfully to HMRC yet fail to handle a taxpayer’s particular mix of property and self-employment income. Support teams must then identify where the fault sits across systems owned by different organisations.

HMRC has removed some immediate enforcement pressure by confirming that it will not apply penalty points for late quarterly updates during the 2026–27 tax year. Taxpayers must still maintain digital records and submit missing updates before completing their return, and penalties continue to apply to late tax returns and payments.

Technology spending spans a difficult estate

The £1.1 billion figure should not be interpreted as the cost of Making Tax Digital alone. HMRC operates one of the largest and most complicated technology estates in government, supporting tax collection, customs, benefits, identity systems, fraud detection, contact centres, payment services, and data exchange with employers and financial institutions.

Its infrastructure also combines modern cloud and software platforms with older systems that are expensive to maintain and difficult to replace. Techopia recently examined how HMRC’s digital programme is moving into its legacy technology estate, where the department must migrate services without interrupting the flow of tax revenue.

A rising IT budget may reflect greater investment, higher supplier costs, cyber-security work, inflation, cloud consumption, or the expense of keeping ageing systems operational. Without a published breakdown of the FOI categories, it is not possible to determine how much of the increase represents new capability rather than the cost of sustaining existing services.

Staff numbers provide only a partial view. HMRC relies on contractors, technology suppliers, software vendors, and government-wide platforms alongside its internal workforce, while salary growth can result from pay changes, recruitment into specialist roles, or shifts between permanent and external labour.

The supplied release links the budget to earlier AI training activity, including Microsoft 365 Copilot courses and wider digital learning. Training can improve familiarity and reduce unsafe experimentation, but it does not establish that AI systems have produced lower costs, quicker decisions, or better taxpayer support.

Delivery will be visible in ordinary transactions

Making Tax Digital creates a more immediate measure of performance because hundreds of thousands of taxpayers and agents must complete the same process within a defined period. Service availability, software compatibility, clear guidance, and the handling of errors will provide more tangible evidence than the size of the technology budget.

The first year’s penalty concession should limit harm when taxpayers encounter unfamiliar processes, although it also reduces the usefulness of raw deadline-compliance figures as a measure of adoption. HMRC will need to distinguish people who submit smoothly, those who send updates late, and those who remain outside the digital system altogether.

Future phases will extend the regime to people with lower qualifying incomes, increasing the number and diversity of users. As the programme expands, software costs, digital exclusion, agent capacity, and the quality of support will become as important as the central submission platform.

HMRC’s technology estate is large enough for £1.1 billion to be both a substantial sum and an incomplete account of the challenge. The first quarterly deadline will not determine whether the department’s wider modernisation has succeeded, but it will show whether a heavily funded digital service can carry a national reporting obligation through the routine systems used by taxpayers and their advisers.