Revenue unable to assess tax owing until new system is fully operational
HM Revenue and Customs has put tens of millions of tax records from UK firms into temporary electronic storage systems and enacted contingency plans after delays going live with a new online processing system.
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The department and IT supplier Capgemini told Computer Weekly they had delayed going live with the Eric (External Routing Interface Component) system because they had learned lessons from past IT projects and wanted to put the equipment through further tests.
This could avoid a repetition of the tax credit fiasco which returned to haunt the government last week. Testing on the tax credit system was curtailed only for problems to emerge after the system went live.
But the delay to Eric comes at a cost. HM Revenue and Customs confirmed that it could not yet assess the tax liability of employees for last year until Eric is working fully.
Some companies have been told by the Revenue that their returns have been correctly validated. But the department has said it may have to contact them later in the year with queries, although employers will have already closed their files for 2004-05.
The Revenue has also admitted that it may have to contact some companies with queries even later than it would have done before the introduction of mandatory online filing. Without the system, many tax staff have been unable to see whether employers have filed their annual returns on time, or should face penalties.
Some employers have been falsely accused of failing to meet statutory deadlines and warned incorrectly that they face penalties.
An internal HMRC e-mail, dated 17 June, leaked to Computer Weekly, told tax staff to stop approaching employers for their tax returns.
"We have become aware that employers are being approached for their return and/or being warned of penalties for filing late. Until further notice staff must not approach employers for their return," it said.
Mandatory online filing of employee tax records for companies with more than 250 employees came into force in May. Companies were threatened with penalties of up to £3,000 if they failed to file their employee records by 19 May. The deadline was extended to 26 May. But having filed online in time, companies found that the Revenue could not process their returns on the Eric system.
The 17 June internal memo said the "continued delay in implementing the new employer's annual return system Eric" meant that "presently only paper returns are being processed and passed on to Brocs", a debt reconciliation system that works out whether employers have underpaid tax.
Eric was due to be introduced on 6 April in time for the mandatory online filing of employer returns in May 2005. It is a vital part of the Revenue's plans to phase out returns sent on paper and various types of magnetic media. It is supposed to give employers a rapid confirmation of whether their online returns are correct.
Eric should pass details from correct forms on how much tax and national insurance was paid in the past tax year to the Revenue's main systems, including the PAYE database and the Nirs2 national insurance system.
But the date for going live has been delayed twice, leaving some tax officers in the dark about how much tax and national insurance was paid by millions of employees.
The department confirmed that it was storing up to 41 million returns and said, "An employee's tax liability cannot be reviewed until Eric sends their pay and tax details to other systems."
Enrico Liverani, director of DCS Payroll, which handles the payroll for clients across the UK, said HMRC had tried to introduce a "very ambitious system" in too short a time.
In a statement HMRC said, "Our plans were founded on Eric being delivered on time. However, we are not willing to compromise on fully testing the system before exposing it to the pressures of live operation, and in doing so we mitigated the impact on customers."
A spokeswoman for Capgemini said the delay was minor and that there was no reason for it to face any financial penalties.
A controlled live test of Eric began on 5 June, which the Revenue said in its statement was "looking good". The system was "fulfilling all of its design functions properly", it added.