Outdated IT damaging tax-collection efforts: PAC

The Public Accounts Committee has said that delays in introducing new IT are damaging the efforts of HM Revenue & Customs to collect taxes.

In a report on HMRC's tax-collection processes, published on 10 December, 2009, the committee said the recession is placing the tax system under stress but the department's efforts to protect tax revenues and recover debt are being undermined by outdated IT.

HMRC has been working with systems that do not provide essential information, such as a profile of debt across taxes, said the report. Better systems, which would help improve tax recovery and reduce loses, will not be fully operational until April 2010.

The department's work to clear a backlog of 17 million PAYE cases cannot begin until the new systems are in place.

The committee found that the amount of tax collected dropped steeply in 2008-09, and was about £22bn lower than in the previous year. HMRC has estimated that £11.2bn of the £27.7bn of tax debt at the end of March 2009 is unlikely to be collected.

Weaknesses in HMRC's IT are constraining improvements in support to tax credit claimants, the report said. For example, system limitations are preventing HMRC staff from reassessing claimants' changes of circumstances and telling them about entitlements as soon as they report a change.

Committee chair Edward Leigh described the situation on tax credit debt as "highly worrying". Since they were introduced in 2003 the department has identified overpayments of £8.4bn, the report revealed. At the end of March it had collected £2.7bn of tax credit debt and written off £1.3bn. Of the £4.4bn still to be collected, HMRC expects 53 percent, or £2.3bn, to remain uncollected.

"The department must decide by March 2010 exactly how much should be written off and be resolute in pursuing all the tax credits debt remaining on its books," said Leigh.

On stamp-duty land tax, the report was more positive. It said that although the computer system for processing the tax was not ready when it was introduced in 2003, these problems have been addressed. Some 83 percent of stamp-duty payers are filing online, the greatest online take-up of any tax where electronic filing is not compulsory.

"At a time when the public finances are under pressure, protecting tax revenues has never been more important," said Leigh. "The recession presents a number of challenges for the department and places the tax system under a great deal of stress."