Her Majesty’s Customs and Revenue is making errors in calculating at least a quarter of taxpayers’ PAYE codes so employers then deduct the wrong amount of tax, according to the House of Commons Public Accounts Committee.
The department is now developing “better IT” to cut the number of PAYE coding errors, which affected at least a quarter of self assessment tax returns in 2004-2005, it noted.
“The Department is developing better IT which it expects to remove a third of its coding errors; improving the management of its processes to reduce its error rate; improving systems to log in returns; and clearing taxpayers from its database who are no longer self employed” the report said.
“However, the Department does not know how much compensation it has paid to those affected by its errors and cannot provide any estimate of this figure.”
The report, Filing of income tax self assessment returns, also says the department is also struggling with 1.6 million self-assessment forms filed online in 2004-05. “The service did not operate properly in January 2005 when a large number of people tried to file online. Although the Department has improved the capacity of its e-service, it may still not be sufficient at peak times,” it said.
The HMRC needs a system that can track errors in processing, coding, the imposition of penalties and their enforcement, as “a minimum,” the MPs said..
The report also called for improvements in telephone helplines, online forms and for improved training for call centre staff and to extend the hours of service at peak periods throughout the year.
Tax payers made mistakes in filing which could amount to £2.8bn, the MPs said.
Overall, HMRC made errors in processing nearly 500,000 returns, resulting in £65m in undercharges and £30m in overcharges of taxpayers. It also made 2m Pay as You Earn coding errors.
PAC Chairman Edward Leigh called on HMRC to deal with its mistakes.
"HMRC is responsible for errors in processing returns in 5 percent of cases. And some 30,000 taxpayers received incorrect penalty notices even though they had actually filed on time. The department must improve its performance in this area."
The committee heard that HMRC made errors in processing 500,000 returns, leading to 65 million pounds of undercharges of taxpayers and 30 million pounds of overcharges.