The Inland Revenue and Accenture have agreed new working arrangements to prevent a repeat of computer problems that led to more than 100,000 taxpayers overpaying an average £148 in tax.
The move follows a critical report from the the House of Commons Public Accounts Committee which attacked the Revenue for closing the 1997-98 records of just over a million taxpayers without having carried out its normal end of year checks.
The committee's chairman Edward Leigh said the decision showed a "cavalier'' disregard for taxpayers' interests.
The decision to abandon the usual checks was prompted by problems with an interface between a new national insurance computer system (Nirs2) operated for the Revenue by Accenture, and the PAYE computer system operated by EDS. There had been problems testing the interface before Nirs went live.
Now both systems are operated by Accenture following the full integration of the Contributions Agency into the Revenue and since the problem, the Revenue and Accenture have drawn up a revised working agreement to prevent any repeat of the problem. There has been a fundamental review of the two systems and the interface linking them, and this had led to the new arrangements.
In their report, the MPs observed, "Although initially they [the Revenue] thought this would result in a net loss of £2m to the Exchequer. Later work indicated that it was more likely to have led to a net gain of £18m, at the expense of individual taxpayers, who might have overpaid tax by as much as £22m.''
The committee said that sampling suggested that of the 1.04 million taxpayers involved, 87% would have paid the correct amount.
But that still left some 134,000 who might have paid too much or too little, with a typical average overpayment of £148 affecting more than 100,000 people, the committee said.
It accepted that the Revenue had undertaken to do everything it could to contact those people who might have overpaid.
Leigh said, "Although it would not be reasonable to expect the Inland Revenue to make extensive administrative effort in order to find every last penny of possible tax overpayment, in this case it was a mistake to take this action without knowing the impact on individuals.
"In reality many thousands of people have been affected, paying on average around £150 too much tax - a significant sum for most people.
"I am pleased that the Inland Revenue has now, albeit belatedly, contacted the taxpayers who might have lost out, and hope that taxpayers' interests will not be disregarded in such a cavalier fashion in future.''
The committee said the actions of the Revenue in relation to individual taxpayers were not defensible and for many the sum involved would be "substantial".
What went wrong with the tax systems
- A late start was made on processing tax returns in 1997-1999
- The Nirs 2 data validation process rejected more records than expected, which delayed the transfer of information
- Tapes were found to contain data that was incorrectly labelled, incomplete or unreadable.
- A Nirs2 flaw meant data could not automatically be matched to the PAYE system where the NI number had changed.