HMRC's real-time information (RTI) tax reporting system lacks comprehensive disaster recovery that could put the Department for Work & Pensions' (DWP) controversial Universal Credit welfare programme at risk, according to a report by the Public Accounts Committee (PAC).
In the report, which focused on HMRC's tax collection activities throughout 2012-13, MPs made several recommendations to the government department to improve the way it collects tax.
As part of this, the chair of PAC, Margaret Hodge MP, suggested that a key area for HMRC to improve on was its RTI system.
"The successful implementation of Universal Credit depends on RTI continuing to work properly, but the system does not have full disaster recovery arrangements. System failures could have serious consequences for payments to individuals."
PAC said that the lack of full disaster recovery arrangements in the RTI system means there is a risk that any system failure "will delay or introduce errors in payments to Universal Credit claimants".
The committee urged HMRC and DWP to work together because Universal Credit uses information transferred to it from RTI to calculate payments to claimants, and it will eventually replace tax credits.
It recommended that HMRC undertake the work necessary to improve the provision for disaster recovery within the RTI system to ensure that payments would still reach claimants in the event of a system failure.
RTI is intended to make it easier for HMRC to keep track of working people, so that they can receive benefit payments sooner, and to ensure that payments are accurate.
It was launched in April, but, according to reports in July, the system struggled to accommodate organisations that run two or more payroll systems. As a result, up to 40,000 taxpayers could have paid the wrong amount of income tax.
However, HMRC analysed the system and in October released a report that found the RTI system was not the reason for discrepancies in calculating charges. Instead, it claimed it was the transition to the system for employers and payroll service providers that had been causing the problems.
In the latest PAC report, Hodge claims that the implementation of RTI has been "encouraging overall", but said that small businesses are continuing to struggle. "It is of concern that HMRC is planning from April 2014 to fine companies even though some face continuing challenges."
The committee recommended that HMRC analyse the RTI survey responses it has received from 24,000 businesses to help it to understand the problems faced by smaller businesses struggling to adopt RTI, so that it can continue to provide them with effective support.
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A discussion of the "risk perception gap", its implications and how it can be closed