Delays to tax system switch could leave millions owing money

HMRC: Delays in transferring tax records

Delays in switching PAYE tax records to a different computer system could leave millions of taxpayers unaware that they owe money or are due a refund, a Public Accounts Committee (PAC) report has warned.

HM Revenue & Customs (HMRC) is moving from an employer-focused system to one oriented around individual taxpayers.

But the committee said the transfer of PAYE records to the National Insurance Recording System has been twice delayed and will add to the 16.2 million taxpayer files that have been kept open, leaving employees unaware that their tax record has outstanding queries that may result in an additional demand for tax or a refund.

MPs on the committee said the delay was "regrettable" but added that HMRC must be absolutely sure the new system is working correctly before the switchover takes place.

The change is required to cope with modern employment patterns where workers switch job more often and frequently have more than one employer. The existing system is employer-based, making it more difficult to assemble information about the position of individual taxpayers.

The transfer of taxpayers' files is now planned for spring 2009. The delay is because "the department's initial assumptions significantly underestimated the capacity to cope with the volume of processing", said the report.

PAC chairman Edward Leigh called for a strategy to eliminate the backlog "to be established and implemented with all speed".

The PAC report also revealed that last year [2007-08], 46 per cent of PAYE returns were filed online, exceeding the target of 35 per cent, but 34 per cent of filed returns were inaccurate, putting £2.9bn to £3.7bn in tax revenue at risk. The majority is related to a small group of taxpayers.