Computer systems blamed as HMRC gets its sums wrong

Nothing, they say, is certain in this life except for death and taxes. 

And, maybe, tax blunders.

HM Revenue and Customs this week revealed that around six million Brits have been paying the wrong amount of tax for at least two years due to its 20-year-old computer systems being a teeny bit out of date. 

The problems with the tax sums were only spotted when HMRC got itself a new IT system that checked the old systems.

The first of the HMRC brown envelopes explaining the tax errors were expected to start flopping onto doormats around the country today – an estimated 4.3 million of them offering the joyous news of a rebate (an average of about £420 per person) and another 1.4 million offering the not-so-joyous news that the recipient had underpayed their tax (by an average of about £1,400).

The underpayments add up to a total of about £2 billion, while the overpayments are worth about £1.8 billion. The money will need to start being paid back in the next tax year – 2011/2012, coinciding with rises in National Insurance and VAT.

According to the Inland Revenue, it’s all to do with its new NPS – that’s a single, national computer system to you and me. As TechEye reported in February, this costly new computer system was introduced in June 2009 and replaced the 12 regional databases that previously handled PAYE processing. According to the HMRC press office, these old databases unfortunately weren’t equipped to communicate with each other. 

In a statement, HMRC said today that NPS had “brought together the former National Insurance Recording System (NIRS) and elements of Computerisation of PAYE (COP) databases to help improve the service we provide to our customers.

“Under the previous PAYE IT system all cases that did not reconcile as balanced needed to be worked clerically one by one. The new NPS IT system allows HMRC to automate that process for most customers, ensuring that more people are paying the right tax and getting things right for the future to prevent under or over payments arising in later years.”

The NPS system does this by creating a “single taxpayer record” which draws together all the individual’s relevant data on one database.

About 45,000 taxpayers can look forward to being in the initial “small batch” of cases being looked at, with those who have paid too much or too little tax receiving a form P800. The rest of the forms are expected to be dispatched by Christmas. Let’s hope there isn’t a postal strike.

The Tories are understandably cock-a-hoop about the situation. 

Conservative MP Michael Fallon was today quoted in the Daily Mail as describing the computer blunder as “shocking”. He said: “The problem is that people will not have set money aside for this and this is a particular problem for those on low incomes.

“There may be a case for waiving amounts that are very small and certainly people should be entitled to a bit of grace before having to repay these amounts.” 

Meanwhile, experts have been urging taxpayers to launch a revolt and challenge any P800s they don’t agree with. The Daily Mail has been leading the charge, telling readers not to pay up and to use a little-known loophole called “A19: Extra-Statutory Concession” that may mean HMRC has to ditch its demands.

According to the paper, it can be used if the person “could reasonably have believed that his or her tax affairs were in order”.

And finally, a word of warning: any correspondence from HMRC will be by post. 

Do not reply to any email you receive on this subject that claims to be from the Inland Revenue – chances are it’ll be one of those lovely email scams.