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Inland Revenue loses millions of taxpayer's records

Tony Collins


Tony Collins

Millions of pay and tax details have gone "missing" as Inland Revenue has sought to transfer records from one outsourced supplier's system to another contractor's equipment.

Although every year some taxpayer records go missing and full explanations are later forthcoming, the current number of “open cases” that are under investigation, many of them because of missing records, is nearly four times higher than two years ago: 8.04 million open cases in May 2000 compared with 2.5 million in May 1998.

Up to 5.2 million of these cases are under investigation because records have gone missing, according to an internal high-level Inland Revenue briefing paper dated 16 June 2000 which reveals a series of problems relating to taxpayer files.

What the briefing paper calls “missing 1998/99 pay and tax details” has become particularly noticeable since the linking of the new National Insurance Recording System (NIRS2) with one of the Revenue’s oldest but most important ICL mainframe systems, called COP, that dates back to the 1970s and holds records on 30 million PAYE taxpayer records.

NIRS 2, based on Hewlett Packard servers, was built from scratch by Andersen Consulting under a seven-year outsourcing contract and the Revenue’s COP system, although built by the Revenue, has been managed by Electronic Data Systems since 1994 under a £2bn 10-year outsourcing contract. The Revenue says that both suppliers are working with the Revenue to resolve the problem of the missing records.

It is expected that both suppliers will maintain that their systems or procedures are in no way responsible for the current difficulties.

When the processes and procedural and system interfaces work well, NIRS 2 will take in data about employee national insurance contributions, salary and tax payments from an employer’s “P14” annual return. NIRS 2 will record all of the national insurance contributions and then the employee’s pay and tax details will be passed to COP.

But the briefing paper says that 5.2 million employee pay and tax records that were expected to be posted on COP for the year 1998/1999, have not yet reached the system.

The Revenue uses COP to assess whether an employee has paid tax and if so how much, and whether this is the correct amount according to the allocated tax code.

If there is no legitimate explanation for a missing 1998/99 tax record, such as a taxpayer becoming unemployed, dying or retiring, it could be that the individual or employer has failed to pay tax for that year, or the employer has failed to send in the annual return.

The difficulty for the Revenue is knowing which or how many of the 5.2m missing records have satisfactory explanations.

The briefing paper says that the “large number of missing pay and tax details means that we may have again to consider the possibility of automatically Z-ing cases …",

Z-ing is an Inland Revenue shorthand for closing off a computer file to meet internal management accounting targets, while effectively leaving it open if information should become available later.

Before Z-ing cases, the paper says that legal and “Ministerial approval” will be needed for the proposed action.

In some cases, Z-ing cases means that taxpayers who have not paid any tax for 1998/99, for legitimate reasons or otherwise, may not be actively pursued by the Revenue.

It could also lead to the records of some employees showing that they paid no tax in 1998/99 although their employers may have sent the full amount to the Revenue. It is also possible that employers who failed to pay tax on behalf of their employees in 1998/1999 may not be actively investigated by the Revenue.

The briefing paper, which is entitled Employers End of Year Return Processing and Open Case Clearance says the number of missing pay and tax items for 98/99 is 5.2 million compared to 3 million 97/98 items missing at June 99.

By this month, the paper says that the Revenue should send a letter to its solicitor “updating him on the position and forewarning him that we may later in the year need to Z cases without pay and tax”. By 30 November the Revenue may need to “seek Ministerial approval to proposed action” and by 31 December it may be necessary to “automatically Z cases without 1998/99 pay and tax”.

The paper adds: “In the light of this we should aim to have taken all reasonable steps to locate the missing pay and tax items by October”.

The problems are not confined to the 1998/99 tax year. In the tax year 1999/2000, only 2.6 million records had been posted to COP by the time of the briefing paper, compared with 12 million by the end of May 1998. This is due partly to changes in the P14 forms, which has led to mistakes by employers in completing them, or employers not sending in the forms on time.

The Revenue says it is confident that its investigations will show that nearly all the records have gone missing for legitimate reasons. It adds that one of the reason for the apparently high number of open cases - 8.04 million in May 2000 compared with 4.9 million at May 1999 and 2.5 million at May 1998 - is that the latest open case figures include the 5.2 million missing pay and tax files.

It adds that many cases are open for understandable reasons. For example cases are held open and therefore under investigation is a taxpayer is thought to have under or overpaid tax, the tax paid does not match the tax code, or the tax code used by the employer for an employee does not match the tax code issued by the Revenue.

It has launched a review, due for completion around the end of next month, “into the whole process from receipt of the end of year return through NIRS2 and COP processing to clearance of open cases”.

Any employee who is concerned about missing pay and tax records for 1998/99 should, if they contact their tax office, have their P60 to hand, which confirms the amount of pay and tax paid in a particular year.

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