HM Revenue and Customs has apologised to 10,000 firms
after fining them at least £400 each by mistake because of a basic
flaw in the design of automatic systems that issue penalty
notices.
HMRC staff have told Computer Weekly that incorrect fines, and
the IT-related flaw (see box, p4) which caused them to be issued,
are one symptom of the department's losing its battle to cope with
huge backlogs of work alongside its statutory responsibilities.
A leaked internal memo said various offices had been issued with
a spreadsheet with the details of employers fined incorrectly.
Staff have been told to review each relevant case, discharge the
penalty and "issue a letter of apology to the employer in all
cases".
Once the fine has been cancelled, HMRC's compliance system will
issue amended notices to all employers and if necessary their
agents, and ensure that the fine is not followed up as a debt.
The memo said a "fix" was being made to the compliance system to
prevent further incorrect fines being issued at the next penalty
run in March 2006.
In a statement to employers HMRC said, "We would like to
apologise to employers and affected agents for the inconvenience
undoubtedly caused by an error in our systems. We recently
discovered that approximately 10,000 employers received penalty
notices for 2004-05 although no penalty is due. This came to light
because of the welcome increase in online filing."
The statement added that the incorrect fines were not due to any
further problems with Eric - a system that validates the data in
annual returns that are completed online by employers. The full
introduction of Eric was delayed by four months last year.
In a separate blunder, the department has instructed some staff
to stop processing specific end-of-year tax returns relating to the
building industry after the amounts of tax due were mistakenly
doubled. "We are urgently investigating this problem," said a
leaked internal memo, dated 30 December 2005, which also revealed
that the problem may have occurred before.
The memo added that the difficulties had led to a specialist
unit within the department - the Central Exception Processing Team
- being provided with the wrong amounts to enter as total tax in
core IT systems.
HMRC has declined to estimate the cost of putting right the
latest mistakes or say which organisation was responsible: HMRC or
its main IT supplier Capgemini.
The blunders come at a time when the department is fighting to
manage the ramifications of £2bn worth of overpaid tax
credits, merge the Inland Revenue and Customs and Excise, and make
12,500 staff cuts and £507m of efficiency savings by early
2008.
Computer Weekly last year highlighted the temporary inability of
HMRC's systems and processes to cope with the increasing number of
tax returns filed via the internet by employers.
The department was unable to tell whether millions of employees
had paid too much or too little tax, it issued incorrect penalty
notices to thousands of companies, and had to relax parts of its
enforcement regime because of a lack of information on who owed
what.
Public spending watchdog the National Audit Office last year
refused to sign off the department's accounts because of
unacceptably high levels of fraud and error.
An HMRC spokesman said his department's officials were
unavailable for comment.
How firms were incorrectly fined
Tens of thousands of businesses have been fined incorrectly for
failing to submit a P11D(b) notice, which provides for national
insurance contributions on taxable benefits they provide to
employees.
In cases where employers did not need to submit P11Ds, they had
completed their 2004-05 annual returns by indicating in the
appropriate field that a P11D(b) was not due. This was recorded on
HMRC's main systems and visible to officials on their screens. But
the department's systems did not have a link to stop the
penalty-issuing equipment sending out fine notices.
It was not until employers and their professional associations
queried the fines with HMRC that the department spotted what had
gone wrong.