The normal collection of tax revenue and balancing the
government's books was hit by IT- related difficulties over the
spring and summer.
The problems are in addition to the difficulties HM Revenue and
Customs (HMRC) faces with tax credits, which are highlighted in
this week's National Audit Office's annual audit of the
organisation.
The difficulties raise questions about the government's plans to
encourage many more companies and individuals to file returns
online. Experts question whether staff and ageing systems can cope
with the increasing workloads.
A series of memos issued internally by HMRC and leaked to
Computer Weekly show that the IT difficulties and delays in
processing annual returns have led to enforcement action to recover
tax being held up and receipts of income to the government being
affected. They also say that:
lRemedial action has had to take place on a range of IT systems
after information was incorrectly posted onto tax and national
insurance systems
lThe full processing of PAYE tax returns sent via the internet
began four months late, on 10 August 2005 instead of April
lIncorrect penalties and duplicated underpayment notices have
been issued
lTax officials are having to contact employers to find out their
latest tax position.
Some of the difficulties have prompted members of leading UK
accountancy organisations to collectively criticise as a "debacle"
HMRC's online PAYE systems and arrangements.
In a report they said, "Many employers and agents might well
have been financially better served if they had filed on
paper."
But a spokesman for the Revenue indicated last week that some of
the problems were in the past. "All our systems are currently
working normally. In fact, our service levels are the highest they
have ever been, delivering high-quality service to our customers,"
he said.
The spokesman said the figures to date "do not suggest there has
been any significant impact on cash flow" as a result of some
processing delays.
The scale of the challenges facing the department can be seen
from its board reports and the leaked memos. In July, the board
report said, "HMRC is running a number of difficult projects which
are placing strain both on IMS [information and management systems]
and capacity generally."
The board also noted, in a discussion about gaining an overview
of HMRC's performance, that it was "still struggling to get a
consistent set of management information".
One of the leaked e-mails referred to the need to "stop any
end-of-year reconciliation work" on taxpayer records. It added that
information that had been posted incorrectly onto tax and national
insurance systems and although this had been fixed, "recovery
action is taking place on all our IT systems".
The HMRC spokesman said the systems were now working
normally.
Another e-mail to HMRC area directors, tax credit office
managers and national insurance managers advises them "what to say
to customers about delays in processing employer's annual
returns".
But the advice, dated 16 September, gives no scope to staff and
managers to admit there have been hold-ups in processing returns
because of IT problems, even though other internal memos refer to
IT-related difficulties.
The September memo allows staff to tell complainants "if
necessary" that, "Earlier this year we said that we expected to
have processed the majority of returns by July, and we very much
regret that processing is taking us much longer than we expected."
No explanation is given as to why there are delays.
The memo concedes that smaller companies requiring a cheque for
£250 - an incentive payment from HMRC for filing online - will not
receive it until their tax returns are processed. It asks employers
to deduct £250 from their next payment to HMRC.
"We know from your feedback that you are getting a lot of
enquiries from employers and agents wanting to know what is
happening with the processing of returns, as well as complaints
from small employers who want their £250 tax-free payment but
cannot 'self serve'."
The full range of problems facing HMRC are likely to be
highlighted by MPs at meetings of the Treasury Select Committee and
Public Accounts Committee between now and mid-December.
Accountancy organisations slam online PAYE
'debacle'
Senior members of major accountancy organisations have called HM
Revenue and Customs' online PAYE systems a "debacle".
In a report, they said, "The situation [with online PAYE filing
for large companies] has been thoroughly disruptive and has
resulted in further increasing the cost of compliance for
employers... payroll agents have been subjected to undue stress and
expense through the failings of HMRC to cope with the
workload."
The report, compiled by the e-business sub-group of the
Association of Accounting Technicians, added, "The department found
itself overwhelmed by a predictable volume of work and quite unable
to provide a full and effective service to customers. There was
massive frustration with the online experience."
All those contributing to the study emphasised the potential
benefits of online filing and said the report aimed to help avoid
similar serious future problems.
The study was compiled with the help of contributions from
members of the Institute of Chartered Accountants of England and
Wales, the Institute of Chartered Accountants of Scotland, and the
Association of Taxation Technicians.
Revenue confirms system troubles
A spokesman for HM Revenue and Customs confirmed that officials
have been contacting some employers to ask whether they have filed
online - information it should be able to glean from its own
systems.
The spokesman also said that HMRC regretted that "a small amount
of information was incorrectly sent to its receiving tax and
national insurance systems in the summer".
He added that this had been quickly identified through normal
checking processes and action taken to recover all of the affected
systems. "This action is now complete and all systems are
processing normally," he said.
HMRC referred to delays in processing due to Eric, a system for
validating annual employer returns and passing details to the
department's main systems. But the spokesman claimed these were
"purely down to our testing" of the system and this has had "no
material effect on the service we provide to our customers".
He added that Eric is "now processing returns at pace."