Tax & pensions system plagued by issues

The National Audit Office (NAO) says that delays to a single tax and pensions system cost HM Revenue and Customs £33m in procurement costs.

In a report (pdf) published on 20 July 2010, the accounting watchdog says that difficulties with the National Insurance and PAYE Service system led to it being deferred twice before it was completed in April 2010.

In addition to the cost hike, its late introduction left the department unable to realise £55m of planned efficiency savings during 2008-09 and 2009-10.

The system has now been rolled out to 650 locations, 23 business units and 28,500 staff. But since April there have been further problems with the quality of employment data and the operation of the new service.

They include a backlog of seven million potential over- and underpayments of tax, and the generation of incorrect employment records because of the system’s inability to match some end of year returns to existing records.

The NAO has called on the department to review its systems for capturing and processing data and to look at standards for data quality submitted by employers.

In 2008 the NAO reported that HMRC needed to improve its debt recovery management, but its latest findings reveal that the department’s ability to improve is constrained by IT limitations.

The new report says that HMRC’s core debt management system supports a number of functions, and that the integrated design makes it difficult to separate certain functions to manage customer contact flexibly. It offers only limited capability to analyse debtor behaviour and prioritise interventions.

In 2009-10 HMRC paid £27.3bn in tax credits. It estimates that, based on 2008-09 awards, error and fraud resulted in incorrect payments of between £1.95bn and £2.27bn.

However, the NAO reports that in 2009-10 the department launched a new strategy for reducing fraud and error. This included comparing tax credit data to other systems and targeting areas such as income discrepancies.

The new approach has produced positive results, says the NAO, and in 2009-10 error and fraud worth £356m was identified.

Amyas Morse, head of the National Audit Office, said: “The administration of tax in 2009-10 by HM Revenue and Customs has been influenced by three broader issues: the recession, which has increased the value of tax debt to be recovered; the pressure on the department to streamline its processes; and the effectiveness of its information systems.

“Those systems need to be developed so they improve the department’s ability to monitor and assess the targeting and performance of its debt collection campaigns and to design future interventions in the areas of greatest risk.”

This article was originally published at Kable.