The Inland Revenue has lost up to £2bn in overpaid tax credits and the new IT systems that should help rectify the problems are not working properly, according to a National Audit Office report released today.
The NAO report highlighted a series of shortcomings, including the testing of IT system supporting the Inland Revenue’s new tax credit payments, which were introduced in April.
NAO head Sir John Bourn said, "The level of problems caused to tax credit claimants and employers as the new tax credit systems went live in April 2003 demonstrated that there were undetected gaps in the design of the testing regime for the system."
Auditors found that from April, there were serious performance problems with the system, developed by EDS, which affected the ability of Inland Revenue staff to process claims. They also revealed that "significant time" was lost when the system was closed down to clear internal queues.
The Inland Revenue and EDS are now considering what lessons can be learned about technical system and design strategy.
Bourn also warned that the tax credit problems could undermine the Inland Revenue’s reputation. "The Inland Revenue must pay particular attention to ensuring that recovery from the problems with new tax credits does not undermine the department’s reputation for integrity and accuracy when dealing with taxpayers’ affairs," he said.
A spokeswoman for the Inland Revenue said that the department is considering the findings of the NAO report, and that the backlog in processing child and working tax credit claims had been cleared.