1980s computers hold up taxman's hunt

Outdated computer systems are contributing to a huge backlog of people who may not be paying the right amount of tax, a committee of MPs has found.

By March 2008 a total of 16.2 million Pay As You Earn (PAYE) cases were waiting to be checked manually by HMRC employees to see if the individuals in question were paying the correct level of tax.

According to a report by the Public Accounts Committee, the backlog that has been lengthened by delays in transferring cases from the 1980s PAYE computer system.

The legacy PAYE system is organised around employers rather than employees, making it difficult for the department to gain a complete view of how much tax should be paid by people with more than one job.

"The backlog of cases will get worse due to the delayed transfer of processing to the National Insurance Recording System," the report said.

"Many taxpayers will be unaware of outstanding queries against their tax record and the possibility of either additional demands for tax or refunds."

The transfer of PAYE cases to the newer National Insurance Recording System (NIRS) has been put back twice and will now take place this Spring.

The NIRS system will decrease the number of PAYE cases that have to be checked manually, by allowing all information on individuals to be shown alongside their national insurance record and providing HM Revenue and Customs with a more complete view of their income.

According to a spokesman for HMRC most cases are cleared without manual intervention.

"Seventy per cent clear automatically. Even in the remaining 30 per cent, customers may not be underpaid or overpaid; it just means we have to check their record against all the information we hold," he said.

The PAC report follows a long history of technical problems with the tax credit computer systems. Since the scheme was set up in 2003 until 2007, the taxman has overpaid £7.3bn in tax credits.