HMRC Computer System Reveals Tax Discrepancies

A new computer system at HM Revenue and Customs is responsible for the discovery that millions of people were taxed incorrectly between 2008 and 2010, and now face either a tax rebate or a demand to make up underpaid income tax.

According to reports over the weekend, almost six million people have paid the wrong amount of tax through the Pay As You Earn (PAYE) system, with around 4.3 million due a refund. However, the 1.4 million people who have underpaid will now have to hand over an average of £1,428 each.

Some reports claim that the new system has also uncovered a further 5.8 million “legacy” errors, dated from before March 2008, but HMRC is denying this claim. Those affected will be informed by HMRC by letter.

Greater accuracy

According to HMRC, its new IT system calculates PAYE deductions to a far more accurate degree than the previous system, which was based on an outdated model of employment. The new system responds more quickly to individuals’ employment changes during the course of the year, improving data quality and reducing cases of under or overpayment of tax.

“This year and going forward the new IT system will mean more people paying exactly the right tax at the time then ever before,” said an HMRC spokesperson.

However, HMRC’s new system, which was originally due to begin operating in June 2008, has been hit by numerous delays and rises in cost, as well as concerns about the accuracy of the information it holds. An investigation (pdf) by the National Audit Office (NAO) earlier this year also found that taxpayer data had been uploaded on to the new computer system last year without being checked for accuracy.

“The integrity of the information held on individual employments was not validated prior to migration,” wrote the NAO in its report. “Evidence from the initial operation of the new Service suggests that the Department did not fully appreciate the extent of risk from data inaccuracies or its implications for the delivery of PAYE.”

According to the Whitehall watchdog, HMRC estimates that “changes in system requirements and implementation costs, including those to meet revised security guidelines, have added a further £78 million to the cost of the project.” The backlog of open cases is expected to take a further four years to clear.

IT spending cuts

HMRC is one of the government departments to have had its IT budget frozen this year. A report by Gartner earlier this month found that government cost cutting drives and slow growth in the private sector could lead to zero-growth in the technology industry in 2011.

“The bottom line is that technology providers need to be prepared for the worst case, where commercial IT markets stagnate and governments transition to fiscal austerity programmes,” said research director Kenneth Brant.

Meanwhile, more than two thirds of UK citizens do not believe they have sufficient access to government data about themselves, according to a recent study by Informatica, and 76 percent want more access to public sector information.

The government’s digital champion, Martha Lane Fox, is currently conducting a review of government online services, looking for ways to improve efficiency and save money.