Tax chiefs in two-year PAYE chaos cover-up

By This Is Money
Updated: 03:50 EST, 1 February 2011

 

Tax chiefs knew their Pay-As-You-Earn system was in meltdown two years before they issued shock demands to millions of workers.

An influential committee of MPs will condemn them today for springing bills on families and provoking 'uncertainty and worry'.

HM Revenue and Customs alerted 15m people last September of errors in their tax calculations - a year after finding faults in its system. It was already sitting on a backlog of PAYE cases going back to 2007 and earlier.

MPs called on the Government to act quickly to restore confidence in the system.

The report, by the Public Accounts Committee, said HMRC knew as along ago as 2008 that at least seven million people had either overpaid or underpaid tax.

But because of computer problems it failed to inform individuals that they may owe money - or need to pay more tax - until September 2010.

Taxpayers have overpaid the Revenue by £3bn - while an estimated £1.4bn has been underpaid.

In another blunder, the Revenue will also have to write off £650m of tax because it failed to understand that the 2008 Finance Act reduced the time for collecting unpaid debt from six years to four.

Margaret Hodge, chairman of the Commons committee said: 'HM Revenue and Customs has failed in its duty to process PAYE accurately and on time.

'The Department knew that seven million people had overpaid or underpaid tax in 2008-09 but took no action and did not start informing individuals until September 2010 because of problems with the new computer system.

'This came on top of the Department's failure to tackle a backlog of PAYE cases from 2007-08 and earlier, affecting some 15m taxpayers.'

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She added that HMRC's mismanagement 'caused uncertainty and worry to taxpayers and inequity in the system'.

MPs called on the tax department to show its new PAYE system could restore confidence. The committee also signalled it wanted HMRC to be more transparent about its tax dealings with major corporations in future.

An HMRC spokesman said: 'We recognise the uncertainty and concern caused to people by unexpected tax bills.

'The new computer system is now allowing us to bring taxpayers' records up to date, improving the accuracy and fairness of the tax system for the future.'

A coalition source insisted that HMRC had been making good progress putting the problems right over the past six months.

The source said: 'The difference couldn't be clearer. While labour ignored shamefully these problems for years, the coalition is dealing with them as we work towards a much fairer system.'

Some 90% of taxpayers owed money from 2008/09 and 2009/10 have now received it.

Debts of 250,000 pensioners had been written off.