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The Revenue ‘failed in its duty to process pay-as-you-earn accurately and on time’, claims a new parliamentary report that is highly critical of the shortcomings that led to the much-publicised backlog of 18 million PAYE cases from 2007/08 and earlier.
The paper from the Public Accounts Committee of MPs castigates HMRC for their ‘flawed implementation’ in 2009 of the National Insurance and PAYE Service (NPS), which was the final phase of efforts to modernise the collection of income tax.
Software problems and ‘data quality issues’ delayed the processing and disrupted the issuing of tax codes, leading to ‘lasting and costly losses’ for the Revenue, while taxpayers have suffered ‘unacceptable uncertainty and inconvenience’, according to the committee.
It estimates total underpayments at £1.4 billion and overpayments around £30 billion, warning that 'as a result of its mismanagement of PAYE processing, the department has not collected tax due from some individuals and has taken too much from others, causing both uncertainty and inequity in the system.
‘The department knew in December 2009 that up to seven million people had overpaid or underpaid tax in 2008/09, yet it did not take steps to identify and inform the individuals involved until September 2010, when it began reconciling PAYE for 2008/09 and 2009/10 combined,’ says the report, HM Revenue and Customs’ 2009-10 Accounts.
It goes on to note that the full price of the difficulties with the implementation of the NPS is as yet unknown, and HMRC ‘should provide a comprehensive statement of the costs… including the estimated cost to the conclusion of the stabilisation programme’.
The MPs also criticise the tax authorities for failing to foresee the consequences of the changes in the statutory deadline for recovering underpayments of tax introduced in Finance Act 2008.
‘The department was aware that the change in the deadline would prevent it collecting underpaid tax for 2004/05 and 2005/06, estimated at £150 million. However, it failed to appreciate the impact of the deadline on the 1.9 million underpayments in 2006/07 and lost the chance to recover any of the £500 million tax owed.’
The committee is unconvinced by HMRC’s explanation of how they decide to allocate resources to maximise the collection of PAYE.
‘The department has not analysed whether employing additional staff on PAYE, rather than reallocating resources from elsewhere, would bring a net gain. The department should assess the return on investment of having additional staff collecting PAYE, and structure its staffing to maximise the net revenue collected,’ says the report.
It also casts doubts on both the transparency of the way tax disputes with large companies are resolved, and the taxman’s failure to distinguish between debt that is collected and debt that is written off.
