HM Revenue and Customs (HMRC) could face major IT integration following the government's announcement in the budget that the income tax and national insurance contributions (NICs) systems could be brought together in an effort to reduce complexity.
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In today's budget, the government said it will "consult this year on the options for integrating the operation of income tax and national insurance contributions".
Capgemini leads a consortium of suppliers providing technology and support to the HMRC for these systems as part of the Aspire contract.
Integrating legacy IT systems is never straightforward, particularly when they have to be kept running during an upgrade. They also hold vital information which would cost the Exchequer millions of pounds if it were lost.
A project to integrate the national insurance and income tax systems is a big one, according to Graeme Swan, partner at Ernst & Young, who used to work on HMRC IT. He said such a project could take up to five years to complete. "Any meddling with tax and NI needs to be considered. They are massive legacy systems. You tweak them at your peril."
Millions of pounds can be lost if the systems underpinning the tax system fail. The Public Accounts Committee (PAC) estimates £1.4bn of tax was underpaid and £3bn overpaid between 2004-2008 as a result of problems including software failures.
The HMRC has already brought together databases that underpin income tax and national insurance systems.
In 2009, HMRC implemented a national insurance and PAYE service, to bring together individuals' pay and tax details into a single record and reduce the likelihood of overpayment and underpayment of tax.
But according to a report from the Public Accounts Committee earlier this year, HMRC failed to tackle a backlog of 18 million PAYE cases from 2007-08 and earlier, affecting an estimated 15 million taxpayers. "HMRC's mismanagement has caused uncertainty and worry to taxpayers and inequity in the system," said Margaret Hodge, who chairs the committee.
Software problems delayed the processing of 2008-09 PAYE returns until September 2010 - a year late - and data quality issues have further disrupted the issue of tax codes for 2010-11, the report said.
- For more on the 2011 Budget, click here.