The chairman of the All Party Parliamentary Taxation Group has urged HM Revenue & Customs to move to real time systems, as he accused the department of losing £1.3bn of taxpayers' National Insurance contributions.
It emerged in a parliamentary written answer this week that HMRC has had trouble matching people's contributions with its records. But HMRC strongly denies the accusations that contributions have been lost, insisting that gaps in contributions would normally be noticed by itself or taxpayers, and then rectified.
Ian Liddell-Grainger, chairman of the all party group, however, said HMRC was "sitting on a NI time bomb". Unaccredited NI contributions for more than 9 million people had been built up over the past five years, he said. There were fears that processing problems would lead to taxpapers receiving a lower state pension than they were entitled to as a result.
The issue demonstrated the imperative for HMRC to switch to a “real time” taxation system, he said. HMRC is consulting on this.
HMRC last year upgraded its National Insurance system, but it is not real time. The new system allowed it for the first time to align people's income tax and National Insurance in one system.
It has so far not commented on whether the new system played a part in the problem, or whether it is reducing the issue.
HMRC insisted people's pensions would not be affected by the matching issue. "No-one should have a reduced pension. We write to people where we see there is a gap in their contributions, and if they contact us to report a gap we deal with the situation immediately."
HMRC said most problems were down to employers not filling in paperwork correctly when sending in employees' NI deductions. Where mistakes were spotted, it said, its staff were tasked with matching deductions with the right taxpayers. While they do this the money sits in a separate account.
Last year, HMRC integrated various tax databases, which allowed them to identify incorrect PAYE codes. The move led to the discovery that some taxpapers were paying too little tax, while others were paying too much. HMRC then had to make refunds or demand back tax from those that hadn't paid enough.