The National Audit Office (NAO) has miscalculated the number of incorrectly charged tax payers by 500%, the organisation admitted yesterday. The figure now appears to total 5 million, rather than the million the NAO originally estimated had paid the wrong amount of tax.
The NAO blamed HM Revenue & Customs (HMRC) computers for its mistake, citing the way personal records in the system have been restructured. The issues stemmed from the incompatibility between each year's records. In one year, computerised tax records related to individuals, and in the next year they related to jobs. The system was not good for dealing with situations where individuals have more than one job or change employer on a regular basis, NAO's report concluded.
The NAO's report Financial Reporting and Financial Management - General Report of the Comptroller and Auditor General 2007 said the problems created by the new data structure were exacerbated by confusion created by "inconsistent working practices" and "staff failing to follow procedures".
"We continued to note reservations concerning levels of error and fraud by tax credit claimants. HMRC estimated that in 2004-05 tax credits of between £1.04bn and £1.3bn (7.3% to 9.1% by value) were paid to claimants to which they were not entitled. We concluded that these levels of error were unacceptably high. There is currently no evidence to justify a lower estimate for 2006‑07 and we consequently qualified the audit opinion on the HMRC Trust Statement account," said a statement in the report, admitting to tax losses of £880m a year and £340m in overpayments of tax a year.
HMRC claims to be saving £156m in a five-year rationalisation of its IT systems. One of the chief time savers is in the creation of a customer record. However, it was confusion over the single customer record that was identified as the cause of HMRC's losses of £880 million.
The rationalisaton programme is expected to complete in four years' time.
The NAO could not promise to get it right next time. "At the core of the alignment project is a commitment to a better alignment of budgets and estimates and accounts," promised its report. "However, difficulties associated with different accountability arrangements have yet to be resolved," it said. "Significant changes to the relevant processes are likely to require legislation and are not expected to be implemented before 2009-10 or 2010-11."