Leading article: Taxation - neither transparent, nor efficient

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The Independent Online

The first letters have been sent out. The rest will arrive by Christmas. In the coming months, around 5.7 million people will discover that they have been caught up in the great income tax blunder of 2010.

For some it will be good news. Around 4.3 million people have paid too much and are due a refund from Her Majesty's Revenue & Customs (HMRC). But 1.4 million have underpaid and will face an average repayment bill of £1,400. Some will face demands to give back more than £2,000.

Every year HMRC compares the amount of tax it has received from each taxpayer with the amount it expects to receive according to their tax code and income. And a large number of discrepancies have been thrown up this year thanks to HMRC's introduction of a new IT system. The worrying implication is that the system has been getting things wrong for years, but that the mistakes have not been picked up until now.

There are, we are told, various reasons for the errors. People might have failed to tell HMRC about a change to their circumstances such as moving workplace, taking on an additional job, or receiving a benefit in kind. Or it could be because their employer mistakenly used the wrong tax code.

But there have also been suggestions that the introduction of the new IT system itself was responsible for some of the mistakes. If so this will be the latest in a long line of official IT blunders, from the malfunctioning Passport Agency system to the ongoing deficiencies of the NHS computer. This latest fiasco is surely worthy of investigation by the Public Accounts Committee.

It has been argued that the part of the tax system that has malfunctioned, "Pay As You Earn" (which extracts tax direct from monthly salaries) was created in the 1940s when people had simpler work patterns. The system supposedly finds it difficult to cope with the fact that people are now often have several part-time jobs, or move workplaces regularly. Well, HMRC administrators had better get used to dealing with such complexity because this is the nature of the modern workforce. There is no prospect of us returning to the post-war system of stable jobs for life. The tax system is simply going to have to keep up.

But none of this makes the situation any less aggravating for those who are faced with an unexpected tax bill for the coming year. Those affected would be well advised not to pay up unquestioningly. In some cases, HMRC might have missed its own deadline for reclaiming the money. After the shabby way that they have been treated, those who receive a letter requesting repayment should not give the bureaucrats at HMRC and their calculations the benefit of the doubt.

There are larger issues here. A nation's tax system needs to be transparent and efficient if it is to be respected. Otherwise it will provoke evasion and avoidance. Too often in recent years, Britain's has been found lacking. The previous administration's tax credits system was plagued by overpayment problems. And the troubled history of the Child Support Agency, and the delays in subsidy payments to farmers' through the Rural Payments Agency, do not say a great deal for the quality of our public administration when it comes to the collection and distribution of funds. It could indeed be argued that there exists a systemic problem.

The Chancellor of the Exchequer, George Osborne, has established an Office for Tax Simplification. Such an effort is certainly needed. Less complexity should mean less scope for costly error. But just as urgent is the need for the Government to ensure that the existing tax infrastructure is up to the job.

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