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MPs blast HMRC for PAYE fiasco

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1st Feb 2011
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A committee of MPs has publicly accused HMRC of failing in its duty to process PAYE accurately and on time.

“The Department has not delivered an acceptable standard of service to PAYE taxpayers,” the MPs concluded, with the result that it “failed to collect tax that is properly due, caused uncertainty to taxpayers and treated them inequitably”.

These findings were published in a House of Commons Public Accounts Committee report released on Tuesday 1 February. The report drew on hearings held in the aftermath of the uproar last September over the backlog of unreconciled PAYE records and the volume of over- and underpayment demands they created.

The PAC report lays out a series of damning conclusions:

  • Problems installing the new National Insurance and PAYE Service (NPS) system delayed the processing of PAYE for 2008-09 by a year. HMRC knew in December 2009 that up to 7m people had over or underpaid tax in 2008-09, but did not identify and inform the individuals involved until September 2010.
  • The processing backlogs went all the way back to 2004-05 and due to a change introduced in the Finance Act 2008, HMRC has run out of time to collect tax due before April 2007.
  • In January 2010 it began issuing 25m coding notices for 2010-11 without first establishing why the number of coding notices was massively in excess of its forecast. “The Department failed to understand the risks of poor quality data, which undermined the effective operation of the NPS,” the MPs concluded.
  • To keep PAYE processing volumes manageable, HMRC raised the threshold for the recovery of underpayments from £50 to £300 for 2008-09 and 2009-10, foregoing £160m. This introduced inconsistencies with other types of tax, where debts under £300 are not automatically written off.
  • The backlog of 18m PAYE cases that build up meant HMRC delayed the repayment of overpaid tax and put at risk the recovery of an estimated £1.4bn of underpaid tax. HMRC managers failed to foresee the consequences of the changes in the statutory deadline for recovering underpayments introduced in the Finance Act 2008. As well as saying goodbye to around £150m in underpaid tax for 2004-05 and 2005-06, HMRC failed to appreciate that the change would affect some 1.9m underpayments worth £500m in 2006-07 too. “If the Department had processed PAYE promptly, it should have been able to collect nearly all of the estimated £650m underpaid tax for 2004-05 to 2006-07m,” the report noted, adding that it needed to ensure that it does not miss the deadline for collecting revenue for 2007-08.

The PAYE backlog grabbed most of the headlines in 2010, but the PAC report includes a couple of extra stings, for example:

  • Lack of transparency over the way Corporation Tax disputes with large companies are resolved, most notably with the out-of-court settlement with Vodafone that critics allege cost HMRC £6bn in lost revenue. The PAC said it expects HMRC “to cooperate fully” with the recently announced National Audit Office review of this issue.
  • Tax Credits  - HMRC has a target to reduce tax credits debt by £200m, but the MPS noted this “does not distinguish between debt that is collected and debt that is written off”. The Department should set separate performance indicators for the amount of tax credit debt it collected, and for identifying and writing off debt that is no longer recoverable.
  • And, in a move that outraged contractors and advisers wrestling with the IR35 rules on personal services companies, HMRC re-employed its acting chief information officer on a three-month contract for more than £150,000 – more than four times his previous salary.

Recommendations
Aside from its bungle over the Finance Act 2008 collection deadlines, there are not a lot of new revelations in the PAC report, but it pulls together several of the underlying factors that have tormented HMRC in recent years, from its difficulties managing the NPS transition project, the lack of resources to deal with the delays and data errors that resulted, and the overall lack of good management information to guide decision-making within the department.

In the transcripts of hearings held in October and November, the credulity of committee members was strained by HMRC managers’ inability to deliver against assurances presented at previous hearings and to pin down the causes for its troubles with the NPS implementation. An internal review is underway to establish whether any of its IT contractors are to blame, HMRC chief executive Dame Lesley Strathie told the MPs, but in another exchange she declined to divulge details of how much the project cost.

Looking on the bright side, the PAC report noted HMRC’s expectation to stabilise the NPS and PAYE processing by 2012, and to complete the 2008-09 and 2009-10 PAYE reconciliations by January 2011. This will certainly need to be the case if HMRC goes ahead with its planned initiative to introduce Real Time Information for PAYE records from April 2012.

With some 10m cases still outstanding where data quality issues will need further intervention, the PAC recommended that HMRC should process everyone’s PAYE within 12 months of the end of the tax year. “The Department must ensure that coding notices are subject to proper quality assurance before being issued, and that taxpayers are told of their individual under and overpayments as soon as practical.”

The MPs urged HMRC to “make sure it maximises the net revenue it collects before the deadline expires for 2007-08 underpayments of tax, and that it achieves its aim of processing 2008-09 and 2009-10 PAYE by the end of January 2011.”

The report added: “We look to the department to be able to clearly demonstrate that it has resolved systemic data quality issues by the end of 2011 and that NPS is delivering the benefits that it was intended to bring - including improved accuracy and speed of processing, and prompt processing of under and overpayments.”

Clearly dissatisfied with the quality of HMRC’s responses – some of which would not have looked out of place in a “Yes, Minister” script, the PAC called for HMRC to provide a comprehensive statement of the costs of the NPS, including estimated costs of its current stabilisation programme to catch up with end of year reconciliations and annual coding, and the revenue foregone as a result of the delays.

“We are not convinced by the department’s explanation of how it decides to allocate resources to maximise the collection of PAYE,” the MPs concluded.

“It has assessed the amount of revenue brought in by staff working in some other parts of the department, and concludes that they would bring in less working on PAYE. But the department has not analysed whether employing additional staff on PAYE, rather than reallocating resources from elsewhere, would bring a net gain. The department should assess the return on investment of having additional staff collecting PAYE and structure its staffing to maximise the net revenue collected.”

Replies (16)

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By Peter Tucker
01st Feb 2011 16:44

Who is Responsible?

Should anyone from the many members of the Senior Management Team in HMRC be held accountable?

Should anyone from the IT companies mentioned in this article and contracted to deliver the new PAYE Computer system be held accoutable?

Apologies for day dreaming !!!

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By Greenheys
01st Feb 2011 18:38

HMRC

And after this, who really expects them to get iXBRL right?

(At last, finally, the ICAEW and other bodies follow ICAS's lead and send a letter to the Treasury saying stop the nonsense.)

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By cymraeg_draig
01st Feb 2011 19:06

.

Strathie & Hartnet should GO. 

They lied and covered up their own incompetence and should be fired - WITHOUT their pensions.

As for those receiving these belated tax demands - isnt this proof of "official error"?

 

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
02nd Feb 2011 11:44

Some answers for Peter

I'm sorry Peter, it was already a long article when I published it, and if I had included everything I wanted, you'd still be reading it. If you're keen to get to the bottom of this, I can recommend the full PAC report (64pp, 1.2Mb PDF), a digest on our sister site PublicTechnology.net, or going back to the NAO report on HMRC's 2009-10 accounts, which originally laid out the NPS project timetable and mishaps that the PAC investigated.

If you haven't got time, PAC chair Margaret Hodge gave an interview to the BBC in which she went further than the report in criticising the IT project management failings and lack of suitable skills within HMRC:  The chief problem was the computer system, she said: it cost too much to put in and didn’t work when they plugged it in - creating new, erroneous records when it encountered any mismatches in the unvalidated data that it imported.  To quote her (roughly) from the interview above: "Everytime the goverment puts in a computer system, it seems to go wrong. We must have the skills to manage these projects in the real world and to have knowledge about information technology… "There is another issue. Nobody is personally responsible. No official has personal responsibility for seeing through this kind of system. We think there must be better personal responsibility and accountability... HMRC have said they’ll sort this all out by 2012. That may be alright for bureaurcrats… but that’s too long for individuals." As for the individuals and organisations concerned, HMRC chief executive Dame Lesley did not come out well from the exchanges on this topic quoted in the report. In questions 84-86 on 12 October, MP Stephen Barclay took her to task over the employment terms of acting CIO Deepak Singh, who when he didn't get the £160,000 job full time was handed a three-month consultancy engagement (through his personal services company) worth £150,000, plus £11,900-worth of outplacement services to help him find a new job. The MP also named Bernadette Kennedy as the senior responsbible officer and suggested she was on a salary of £140,000-£145,000.Austin Mitchell MP, the one-time scourge of the accountancy profession, turned his sights on Aspire, the outsourcing consortium led by Capgemini (and including Fujitsu, MPPC, BT and several hundred other subcontractors), to establish whether it or any other supplier will face any kind of penalty for the NPS problems.   “When you say the IT did not work,” Dame Leslie replied. “This is a massive programme with lots of different packages of software. The vast majority of the system works...    “However, there are two elements here: there are the bits that did not quite work the way we wanted them to; there were the bits that were coming in later releases and we have just released a lot of them this weekend; but also, you specify you want something back here in 2003, you have nearly 400 changes in that time and then you have delivery in 2009. So, sometimes you get what you ask for, but it is not necessarily exactly as you need it.    “There are very few programmes that I have known that cover a length of period and a scale like this where you get exactly what you set out to get first time… in terms of what went wrong, as I have said, we have not completed that review and it would be wrong for me to make judgments until we come to the end of that review in regard to who has any questions to answer in that.” Questions 79-83 in the same session probed the HMRC chief executive on the overall costs of the 10-year-plus Aspire contract. After arguing over the semantics of who was responsible for what within the Aspire and NPS projects, she replied: "I'm sorry, I cannot answer that." As the Margaret Hodge video confirms, parliamentary committees have a long history of raising issues like this, but precious few teeth. However she argued that under a new procedure, the responsible minister will have to report back to the Commons if HMRC does not implement the recommendations that it accepts from this report. We shall have to wait and see if any heads roll (aside from Singh's) or if any contractors are penalised.

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By Trevor Scott
03rd Feb 2011 09:32

The computer programme ...

...didn't always calculate tax correctly and therefore their statisctics must be wrong.

The truth is that they still don't know what is correct, if they did then it would simply be a straight forward matter of the computer programme printing off the automatic solutions and sending them out with a cheque/demand.   

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By Stephen_Foster
03rd Feb 2011 11:38

Telephone Message

The new telephone message on the employee helpline suggests that employees contact their Payroll department if there is a problem with their tax code.  Guess who they blame then....

I have asked HMRC to rephrase their message.  We shall see....

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By lordburnside
03rd Feb 2011 11:57

Revenue Cockup

May I suggest the revenue pay £100 to each person suffering from these errors - the cost to be borne by a reduction in the wages of those responsible!

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By lordburnside
03rd Feb 2011 11:58

Revenue Cockup

May I suggest the revenue pay £100 to each person suffering from these errors - the cost to be borne by a reduction in the wages of those responsible!

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By Peter Tucker
03rd Feb 2011 12:20

PARDON ?

Sorry if I am not a technical expert, but as I understand the PAC Report, HMRC paid Mr Singh a sum for "outplacement services" in order to assist him find a job, when he was apparently employed by a company which was being paid, albeit for 3 months, by HMRC?

Does this mean you get paid to assist you to find a job, when you have a job OR do you get paid to find a job when you have a job but no one is paying you? I wish I was a technical expert and could properly understand these matters.

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By User deleted
03rd Feb 2011 12:53

Blacklist the providers & sack those in HMRC

Capgemini, Accenture (that well know spinoff from a bust member of the big 4) et al all get in on the act & seem to incur endless failures and yet move from contract to contract with impunity

Time & time again these firms have been called to account and simply managed to walk away without any sanctions (the teflon effect) when in reality they should be blacklisted from any future Government contracts

Having once been the subject of a proposed outsource (TUPE etc) to Gapgemini many years ago we had them in to familiarise themselves with the existing systems before the handover. What a bunch of clowns who were more concerned with paper pushing & [***] covering than anything else (ISO 9000 don't you know) - they were all called Senior Managers, Analysts etc. but not one of them had any programming/development experience whatsoever and discussed everything in generalities rather than specifics.

Anyway after this insight rather than work for Gapgemini one resigned instead & went elsewhere - but it did leave a lasting memory of a disaster waiting to happen.

The original £2.8bn 2004 contract has been extended from 2014 to to 2017 and guess what? Aspire was anticipated to make £1bn + profits from the deal - you couldn't make it up http://www.computing.co.uk/ctg/news/1836895/capgemini-increases-aspire-profits-gbp11bn

and now we are told that with other bits & pieces the contract could rise to £8bn - oh joy. The whole thing may be a disaster everyone else but not for Capgeminis bottom line !

So with these systems saving '.. HMRC £110m a year from 2012 ..' has anyone worked out how many years it will take to recoup the costs (£2.8bn / £110m) - possibly far more years than many times the expected life of the system !!

Surely we should be sending out tenders for the re-write about know so that the entire farce can be started again with a target date of 2022 -and then we can do it all again, and again, and again ..........

Rather like Monopoly for Capgemini, their partners - pass GO collect £200 each time around

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
03rd Feb 2011 12:49

Both Richard Bacon and I are as mystified as you

I'm sure there will be an explanation from HMRC about the timing of these arrangements (covered quite extensively in the PAC evidence), but it struck me as a pretty odd arrangement. At the end of the exchanges about this in Q84 on 12 October (see PAC report), Conservative MP Richard Bacon was pretty much speachless: "Extraordinary" was all he could say.

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By Nick Graves
03rd Feb 2011 15:13

Not sure, mate.

But from the sound of it, Mr Singh might need to take advice from Accountax on whether he's caught or not!

This, GapCemini, et al; the deeper one lookss, the more it all stinks of legitimised corruption...

 

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By abelljms
03rd Feb 2011 17:22

the answer is simples...

....employ more serfs to do the PAYE reconciliations.

Every year the chancellor lies to us by saying he has fixed the PSBR by sacking more civil servants, there has to be a pay off where the inadequate resources cost more in tax than you save on fewer salaries.

And in any case most of it should be done by revving up the amstrads?

in my experience the paye mob operate deeply inefficiently, and thereby make work for themselves by pathetic software and inept staff.

ANYWAY the fix is privatization!!!! Give me 1000 PAYE / CT/ VAT cases and i keep 20% of all the tax i find - after all it used to be that way. Just dress it up as out-sourcing. i even know how to comply with / evade all the data protection twaddle that you will say prevents this.

 

 

 

 

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By abelljms
03rd Feb 2011 17:24

old chestnut

but worth rolling out at every opportunity.

bin NIC, and immediately how many civil servants have even less work,

and therefore focus on paye collections (chinese).

 

 

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By Eric Robinson
07th Feb 2011 09:02

Simple Old Chestnut

Remarks about "Inept" staff and targeting an allocation of only 1000 cases show a total lack of understanding.

Blame the "processes" not the unfortunates who have to "take ownership" of them and make them work.

 

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By chrisjoynes
07th Feb 2011 09:42

Not rocket science

There needs to be some heads rolling here. But more importantly they need to get it right, make the systems work - they don't at the moment because it's just too confusing - make the tax system much less complicated! Get rid of NIC and then the IT systems needed to run the whole process would be simpler, cheaper and better! This isn't rocket science - it's MP's that don't want to completely overall the UK tax system for fear of the media and its portrayal. Will things ever change or are we just stuck.

................................................................................

IR35  Freelancing

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