HMRC awards £275M SAP contract without competition, citing sovereign capability requirement

The UK's tax authority, His Majesty's Revenue & Customs (HMRC), has awarded a £275 million ($370 million) contract to German software giant SAP to migrate its core tax management platform off an aging legacy system. The deal was awarded without a competitive bidding process, with HMRC stating that SAP was the only supplier capable of meeting its stringent requirements for a sovereign, cloud-based solution.

The contract, published in an official notice earlier this month, tasks SAP with migrating the Enterprise Tax Management Platform (ETMP) from the legacy SAP ECC 6.0 system to the newer S/4HANA platform. The ETMP is a critical piece of infrastructure, handling over £800 billion (approximately $1 trillion) in tax revenue and payments annually. The agreement is set to run until 2035.

Why No Competition?

HMRC justified the direct award by stating it fell "outside the scope of the regulations" because SAP was the "only supplier with sovereign capability." This refers to the government's requirement that the system be hosted within the UK, ensuring data sovereignty and control. In a statement from February 2025, HMRC Chief Executive Sir Jim Harra outlined two non-negotiable requirements for the migration: the solution must be delivered under a Software-as-a-Service (SaaS) model, and it must be hosted in the UK.

"Having taken external technical and legal advice we are currently exploring the option to migrate from ECC6 to the updated product S4/HANA supplied by the incumbent supplier [SAP], who can deliver on both these requirements," Harra said at the time.

This decision has drawn criticism from proponents of competitive public sector procurement. The contract was awarded despite the existence of a framework launched in 2022 by the Crown Commercial Service specifically designed to "promote competition in delivering change" for the Tax Platform Major Change, which includes ETMP.

The Technical and Business Context

The migration is driven by SAP's own product lifecycle. The vendor plans to end mainstream support for the legacy ECC 6.0 platform at the end of 2027, with extended support available until the end of 2030 for a 2% premium. HMRC had previously planned to decommission ECC 6.0 by 2030, making this migration a necessary step to maintain system support and security.

SAP has been pushing its S/4HANA platform as the successor to ECC for years, first released in 2015. The company advocates for a "clean core" approach during migration, encouraging customers to remove customizations to simplify future upgrades. However, HMRC's tax system relies on a "highly customized version of SAP ECC6.0," as noted by the Crown Commercial Service. SAP's cloud-based Business Technology Platform (BTP) is designed to handle specialized features and customizations, potentially allowing HMRC to maintain necessary functionality while moving to a cleaner core.

The Broader Landscape of Public Sector IT

This contract is part of a larger pattern of public sector IT modernization in the UK, often involving large, incumbent vendors. In July 2024, French IT services firm Capgemini won a contract worth up to £574 million to run HMRC's legacy tax management systems until 2029. Capgemini was part of the original Aspire consortium (with Accenture and Fujitsu) that built and ran the ETMP under a £10 billion arrangement that was planned to end in 2017.

HMRC has stated it will seek a new contract for a systems integration (SI) partner to manage the S/4HANA migration. This suggests that while SAP provides the core software, the actual implementation and migration work will be handled by a separate contractor, creating a multi-vendor ecosystem for the project.

Impact and Implications

For HMRC, the direct award guarantees a migration path from a system nearing end-of-life to a modern platform, with the assurance of UK-based hosting. However, the lack of competitive tendering raises questions about value for money and whether other vendors could have met the sovereign capability requirement. The UK government has faced criticism in the past for its reliance on large, often foreign, tech vendors for critical infrastructure.

For SAP, this is a significant win, securing a long-term, high-value contract with a critical government client. It also reinforces its position in the public sector, where its software underpins many essential services. The migration of a highly customized system like HMRC's ETMP will be a complex technical challenge, testing SAP's ability to deliver on its promises of flexibility and cost-effectiveness with S/4HANA.

For other potential bidders and the broader competitive market, this direct award sets a precedent. It highlights how stringent requirements for data sovereignty and specific delivery models (like SaaS) can be used to justify sole-source contracts, potentially limiting opportunities for other suppliers, including UK-based cloud providers or other enterprise software vendors.

The migration project is now underway, with a timeline stretching to 2035. The success or failure of this project will be closely watched, not just for its impact on the UK's tax collection efficiency, but as a case study in the balance between competition, sovereignty, and technical necessity in public sector IT procurement.

For more information on SAP's S/4HANA platform and its migration tools, visit the official SAP S/4HANA page. The UK government's procurement policies can be found on the Crown Commercial Service website. HMRC's official notices are published on Contracts Finder.