The Government has approved an Inland Revenue move to clear one million unresolved tax records from its systems.
It means that the Revenue may not be certain in all of the cases whether there has been an under, over or non-payment of taxes.
It has also emerged that, as well as unresolved tax records for the 1997/98 year, there are files on employee national insurance contributions that are missing from the National Insurance Recording system (Nirs2).
The Revenue said the problem, which was discovered in August, is currently being investigated. If records are not posted to the system, it could affect an employee's entitlement to pensions and other benefits.
Despite manual efforts, which found the majority of the problem records, the latest unresolved cases add to about five million tax records that, according to a leaked memo in July, have gone "missing".
Newly leaked internal memos reveal the continuing problems faced by the Revenue after the delayed introduction of Nirs2. It is clear that the Revenue and its two main IT suppliers Andersen Consulting and EDS are doing all they can to restore normal operations.
But, although officials said Nirs2 is now working satisfactorily, its delayed introduction, unexpected problems with major procedural system changes, and other challenges the department faces, have combined to cause immense administrative difficulties.
The Revenue did not set a performance target for clearing open cases, which includes dealing with missing records, by the time its year ended in May. When, eventually, a figure of 94%-96% was agreed, it was already known that the actual performance for that year was about 20% short of the target.
Details from tens of millions of employer P14 returns must be posted onto two computer systems with different architectures each year. The Andersen-built Nirs2 records employees' national insurance contributions. Then the Revenue's COP (Computerised Operation of PAYE) system, managed by EDS, records details of how much tax an employee has paid.
But memos dated 2000 and 1999 refer to "missing" pay and tax records. A record is missing if, for unknown reasons, COP does not have a file that should be there.
A last-resort measure, dubbed "Z-ing", automatically closes the taxpayer's computer file for the year even if information needed to close the record has not been found. In July, it was revealed that the Revenue was considering Z-ing some of the missing cases. Now it has emerged that ministers approved one million unresolved 1997/98 records for Z-ing.
Although the record can be reopened if information becomes available later, Z-ing means the Revenue still cannot be certain how much tax an employee has paid for that year.
The Revenue said Z-ing is approved only after "all other avenues that might lead to the retrieval of the information have been explored".
Every year some cases are processed by Z-ing once the Revenue believes that the employee has paid the right amount of tax. But a letter to Computer Weekly by the source of the memos said the number of unresolved cases is much higher than in the past and could lead to "large-scale losses to the Revenue". Taxpayers may be able to claim compensation for mistakes caused by the Revenue.
With the number of open cases soaring from 2.5 million in 1998 to about 7 million today, the Revenue is expected by the end of next month to seek ministerial approval for further Z-ing of large numbers of records where it is thought the correct tax has been paid.