UK Government Moves to Reduce PAYE IT System Fiasco Political Fallout

Manages to Make it Worse, However

3 min read

UK Government Moves to Reduce PAYE IT System Fiasco Political Fallout

As I noted early last week, the UK's Her Majesty's Revenue and Customs (HMRC) Pay-As-You-Earn (PAYE) computerized tax system fiasco had created a political firestorm.

After a review of tax returns by HM Revenue and Customs, some 4.3 million UK taxpayers were told that they had paid too much in taxes between 2008 and April of this year. The average sum they owe is about £400.

Furthermore, another 1.5 million UK taxpayers were told they would soon be receiving a letter from HM Revenue and Customs telling them that they owe on average £1,428 in taxes from the same period.

In addition, another 6 million UK taxpayers are likely owed tax refunds from years prior to 2008, while possibly another 1.7 million will owe taxes as well. And it may be four years before those owed a refund for taxes paid prior to 2008 see their money.

A major cause of all the taxes owed to the government as well as for the refunds is that many taxpayers were being placed in an incorrect tax bracket because of errors in the new HMRC computer system database.

The firestorm was fueled even further when this past Saturday, HM Revenue and Customs Permanent Secretary Dave Hartnett said in a BBC Radio 4 interview on the Money Box program that there was no need to apologize for asking that the taxes owed the government be paid or for the fact that millions of people had paid too much in taxes which needed to be refunded:

"I'm not sure I see a need to apologise... I've read the papers, listened to the media and heard stories of HMRC blunder and IT failure - neither of those are true."

PS Hartnett also denied that the HMRC made any mistakes:

"We didn't get it wrong."

This immediately infuriated the public and appalled politicians of all stripes who accused  PS Hartnett of being arrogant, especially since report after report of problems with HMRC and its computing systems were published on a regular basis.

The huge outcry forced PS Hartnett to quickly retract his statements by Sunday morning. Many politicians also called for his immediate resignation or dismissal.

Then on Wednesday, the government tried to reduce the flames a bit more by saying that those who owed more than £2,000 in taxes will not have to pay interest on it, and that some 900,000 taxpayers who owed less than £300 would not have to pay it back at all (the previous limit had been £50).

However, showing a political tin ear, the HM Revenue & Customs chief executive Dame Lesley Strathie once more insisted, reports this London Daily Mail story, that HMRC staff had made "no mistakes." She in effect said it was a taxpayer's own fault if they owed back taxes or were to get a refund, and not the fault of the HMRC or its computer systems.

Dame Strathie also said the HMRC's performance was such because it couldn't pick and choose which customers to serve - it had to deal with everyone - whether her government department liked it or not.

Her statements went over like the proverbial lead balloon, and started a fresh round of criticism regarding HMRC management's unfailing "arrogance."

Adding to the depth and breadth of criticism was first the HMRC disclosure that a total of "24 million people could have had their tax bills miscalculated over recent years", and second, that HMRC had agreed to a deal that let the telecom company Vodafone avoid a £6 billion tax bill, and pay only a mere £3 million instead. HMRC refused to comment on the Vodafone deal, citing confidentiality rules.

Nothing like insisting that 1.4 million individual taxpayers pay the £2 billion in taxes they collectively owe or else face the unmitigated wrath of HMRC, while letting a large corporation escape paying three times that amount in taxes it owes and not explain why.

So far this week, HM Revenue and Customs has managed to put its foot, ankle and lower leg into its mouth. It will be interesting to see how further up its anatomy HMRC can go.

Stay tuned.

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