New HMRC system exposes tax discrepancies

New computer system exposes discrepancies

Following discrepancies picked up by a new computer system implemented by HM Revenue & Customs (HMRC), 10 million income tax payers may be entitled to a rebate and 1.4 million could face demands for payment of underpaid tax.

The new computer system is better able to reconcile tax due with that actually paid.

The tax authorities have described the discrepancies as overpayments affecting 4.3 million people, with £1.8bn overpaid in tax since April 2008. There are also 1.4 million people who will have to pay an average of £1,428 each back to HMRC.

HMRC has begun to send out the 44,000 letters to many of those affected, 30,000 of whom are owed rebates and 15,000 of whom unwittingly underpaid tax.

Those who owe less than £2,000 can have the money deducted from their salary over the coming year. Those with more than £2,000 outstanding will be asked for a lump sum.

The inaccurate tax payments result from the switch to a new system that collects all the tax information about individual taxpayers in one place related to the taxpayer's address rather than one or more employers in different parts of the country.

However, The National Audit Office also discovered data was loaded on to the new system last year without being checked for accuracy; in addition, the new system went live with more than 50 identified defects requiring manual workarounds.

The system was expected to generate 13 million new tax codes in January and instead produced 26 million, many incorrect.

The greater mobility of employment, with more employees changing jobs or working part-time for more than one employer, has added to HMRC's problems.