IT failures could cost taxman £51m

The Inland Revenue has warned that the cost of overpayments it has had to write off as a result of problems with the tax credit computer system could rise to £51m.

A software error on the tax credits IT system, which was designed by EDS, resulted in overpayments to 455,000 households in 2003 amounting to £94m.

The Inland Revenue has made a decision to write off individual overpayments of less than £300, totalling some £37m. But the tax office has now warned in its annual report that it may also write off £8m to £14m of the remaining £57m in overpayments, which remained because some tax credit claimants could successfully maintain their overpayment was a result of a mistake by the Inland Revenue.

The admission comes at the same time that a report by the Adjudicator's Office reveals complaints against the taxman have increased over the last year largely on the back of the tax credit problems.

The Adjudicator's Office annual report shows over half of the complaints made against the Inland Revenue were about the tax credit system and 86 percent of those were upheld in the complainants' favour.

The report said: "We have also recently seen a marked increase in the number of Tax Credit complaints that we are taking up for investigation. Two years have passed since the scheme's introduction and, clearly, the tax credit system is still not working well for many claimants. At the heart of many of the problems that we investigate is the sensitive issue of overpayments arising from Inland Revenue errors."