HMRC reports 20 million tax e-record discrepancies

Taxpayer computer records that contain discrepancies have soared from 2.5 million to 20 million in just over a decade, Computer Weekly has stated.

The record backlog of delays in clearing "open cases", as computer records with anomalies are called, means millions of taxpayers are not being notified promptly of extra tax payable or refunds due.

The backlog leaves HM Revenue and Customs having to divert money and people into resolving discrepancies in the records manually at a time when HMRC's board is trying to cope with competing demands of cutting costs while modernising its PAYE systems.

An open case means the taxpayer record has not been reviewed to check the individual's details are correct and the right amount of tax been paid. Each open case means potentially that a taxpayer has paid the wrong amount of tax.

Accountants and payroll administrators say it is unacceptable that HMRC has not reviewed the tax liability of about half of the UK's employees. In 2007, there were about 27 million pay-as-you-earn [PAYE] taxpayers who contributed about £125bn in tax.

Normally tax IT systems automatically close taxpayer records by the end of the financial year, but not when there is data missing, or there are discrepancies and queries, particularly over tax codes.

Research by Computer Weekly has established that the number of open cases which require clerical intervention has risen from 2.5 million in 1998 to 20 million in 2009.

The numbers started to rise steeply in the 1990s when Inland Revenue brought in a new national insurance recording system NIRS2. For years afterwards, Revenue staff had difficulties synchronising taxpayer data on NIRS2 with COP, the mainframe-based Computerisation of PAYE system.

The Revenue would normally have expected about 2.5 million taxpayer records to remain open at the end of the financial year. But after the go-live of NIRS2 and its links to COP, the number of open cases doubled to 4.8 million in June 1999.

By June 2001, the number had nearly doubled again to 8.5 million. At that time HM Revenue and Customs hired an extra 1,250 clerical staff to clear the backlog of open cases.

Despite this the backlog has continued to rise. In 2007, it was 11.5 million. By 31 March 2008, there were 16 million open cases. At the end of March 2009 the backlog stood at 20 million.

In 2007 when the number of open cases was 13 million, the then head of the National Audit Office Sir John Bourn said: "HMRC's computer systems are no longer well-suited to the efficient administration of income tax, especially where people have more than one job or change jobs frequently."

Details of the latest figures were revealed in the 2008/9 accounts of HM Revenue and Customs published this week.

The National Audit Office estimates that six million of the open cases are likely, when they are reviewed, to entail a tax refund or extra tax payable. The Department should extend its use of data matching to assist in clearing open cases, said the National Audit Office.