The tax refunds that really were too good to be true

HM Revenue & Customs has again found itself at the centre of controversy after it emerged its computer system was telling people they were owed five-figure tax refunds.

Chartered accountants Blick Rothenberg uncovered the error after spotting a note on the self-assessment account of one of its clients stating that a refund was due. The group then checked the accounts of all of its clients and found that in every case HMRC claimed it owed them sums of between a few pounds and £24,000.

Frank Nash, tax partner at Blick Rothenberg, said: "HMRC's online system for self-assessment was down a couple of days ago. It was resurrected and when we went on to it to look at our clients' statements of account to tell them what their current tax situation was, we noticed that everybody was due a repayment."

Mr Nash said he had spoken to other tax firms, all of whose clients had been told that they were due a refund too.

He added that his firm knew the clients in question were not due a refund, and that an error had been made. Mr Nash said it was unlikely that the refunds would actually be paid to people as on the account it said payment was pending. But he warned people that they should not try to claim the money, as they were not entitled to it.

Last night an HMRC spokesman said: "We are urgently investigating this issue which appears to affect a small number of agents.

"There is no question of anyone receiving money they are not entitled to or being asked for money they do not owe."

Mr Nash said the error may mean that people genuinely owed money by HMRC may have to wait longer before they received their refund. The situation is also likely to cause confusion among self-assessment taxpayers who do not have an accountant.

HMRC also disclosed yesterday that it more than tripled the pay of a key architect of its controversial new PAYE system to stop him walking out at a crucial moment. A package worth £600,000 a year pro rata was agreed to keep Deepak Singh as acting chief information officer for an extra three months after he failed to land the post permanently.