(UNITED KINGDOM) — HMRC secured an extra £1.6 billion from 2026-27 to 2028-29 to modernise ageing IT infrastructure and data systems as the UK government pushes a wider digital transformation of public services.

Officials have framed the multi-year funding package as part of an effort to overhaul tax administration, aiming to improve service delivery and raise compliance while reducing the burden on taxpayers and businesses.

The investment targets the technology that underpins digital tax services and the data capabilities that HMRC uses to administer the system, as ministers link modern IT and modern data systems to productivity gains across the state.

HMRC runs one of the largest and most complex IT estates in UK central government, and the authority’s modernisation drive starts from a legacy-heavy baseline that is expensive to keep running.

The department spends £785 million annually to run its digital tax systems, and a further £482 million to upgrade legacy systems and introduce new digital infrastructure.

Across central government, 28% of IT still counts as legacy technology, and HMRC depends on IT service providers through contracts secured more than 20 years ago, leaving long-running supplier arrangements and inherited systems as recurring obstacles to change.

That legacy footprint matters because it can constrain delivery of new programmes, forcing teams to maintain older systems while trying to build new digital services, and raising the risk that complex dependencies slow down or reshape plans.

A central test of HMRC’s wider push remains Making Tax Digital, the long-running effort to move tax reporting and record-keeping onto a more digital footing.

The Making Tax Digital programme has run several years behind schedule, and the National Audit Office has warned that delivery pressure has built as timelines have slipped and costs have risen versus the original plan.

Making Tax Digital matters because it aims to change how taxpayers and businesses interact with the tax system, shifting compliance pathways toward digital reporting with the stated goal of reducing errors and cutting administration for smaller firms.

HMRC has set out a transformation roadmap built around three core areas: automation and self-service, data and infrastructure, and workforce and governance.

On automation and self-service, HMRC said it aims for a system in which technology gives people more direct control of their tax affairs, with more processes handled digitally rather than through manual intervention.

A concrete taxpayer-facing change is due in April 2026, when HMRC plans to pre-populate Self Assessment tax returns using Child Benefit data, a move intended to reduce mistakes by filling in some information automatically.

HMRC has also set out plans to digitalise its Inheritance Tax service from tax year 2027-28 onwards, signalling a shift toward online handling of tasks that have often involved paper-heavy processes and complex interactions.

Alongside those changes, HMRC said it plans to expand Making Tax Digital and e-invoicing, presenting that expansion as part of a compliance rationale focused on reducing errors while lowering small business tax administration.

The roadmap’s data and infrastructure strand includes a greater use of third-party data from trusted sources, including banks, both to pre-populate tax returns and to validate information that taxpayers provide.

HMRC cast that approach as a way to help customers “get their tax right first time”, using data already held elsewhere to reduce duplication and the need for taxpayers to re-enter information.

In practice, that kind of data-driven model relies on building systems that can securely match and process information at scale, and on rules that define what data HMRC can use and how it can be applied across different taxes and customer groups.

The authority has also linked its digital plans to simplification of the legislative and administrative framework, arguing that clearer processes make it easier to automate steps that currently require manual checks or workarounds.

Modernisation, HMRC said, also requires changes to infrastructure and workforce, combining technology upgrades with staff skills, programme governance and the resilience of platforms that support critical services.

That emphasis reflects the reality that modern digital services depend on stable foundations: data standards, reliable integration between systems, and clear accountability for delivery when multiple programmes compete for funding and attention.

HMRC’s technology push sits within a broader government agenda that links digital transformation, automation and the use of AI to the delivery of public services and to planned savings.

Chancellor Rachel Reeves announced a £2 billion AI Opportunities Action Plan in June 2025, positioning it as part of a modernisation effort designed to speed up administrative work and improve how departments operate.

The government has targeted £14 billion in efficiency savings by 2028-29 through automation of administrative tasks across the NHS, the Ministry of Justice and the Department of Work and Pensions, tying those savings to efforts to redesign processes and digitise services.

Separately, the government has committed up to £2 billion between now and 2030 to build a modern public compute ecosystem, including over £1 billion to expand the AI Research Resource, linking compute capacity to the ability to develop and deploy AI tools at scale.

Supporters of that approach argue that better data and modern platforms can help departments move away from manual processes, reduce duplication and improve decision-making, but delivery depends on whether legacy systems and complex rules can be simplified and updated.

The same tension sits at the heart of HMRC’s plans, where modern customer services and data-led compliance tools rely on replacing or reworking old components that are still essential to day-to-day tax collection.

Oversight bodies have repeatedly focused on whether modernisation spending can translate into lower running costs, rather than adding new layers of technology while older systems continue to consume budgets and staff time.

Public Accounts Committee chair Geoffrey Clifton-Brown pointed to that risk, saying:

“The costs of running the tax system are rising as the system has become increasingly complex and burdensome. Despite the promises of new digital systems, these programmes are overrunning, overbudget and failing to cut HMRC’s running costs”.

His remarks capture a central challenge for HMRC and for the wider government digital transformation agenda: modern services can improve customer experience and compliance, but value-for-money is harder to demonstrate if ongoing running costs do not fall.

For Making Tax Digital and related programmes, that scrutiny extends beyond technical delivery to the scale of change demanded of businesses and taxpayers, particularly when requirements expand and new ways of reporting become mandatory.

KPMG’s Chief UK Economist Yael Selfin cautioned that AI-driven savings may be difficult to achieve, warning about gaps in digital infrastructure and over-optimistic expectations as governments seek to automate administrative tasks.

Her comments add to a broader theme raised by observers who argue that AI tools and automation cannot substitute for foundational work on data quality, reliable infrastructure and simplified processes, especially in complex systems like tax administration.

That question will shape how the public judges HMRC’s technology push over the coming years, as the authority tries to move taxpayers toward more automated services while confronting legacy systems that continue to drive cost and complexity.