The National Audit Office (NAO) has slammed Her Majesty's Revenue and Custom's (HMRC) for a history of large-scale IT failures that has resulted in billions of pounds worth of taxpayers money being written off.
Margaret Hodge MP, chair of the committee of public accounts, also said that HMRC needs to 'get a grip' if it is to introduce a real-time PAYE system.
It was revealed in April that HMRC would be piloting its real time information (RTI) system that will automatically update employee tax records, which it hopes will make sure employees pay the right tax and/or receive the correct benefits.
The system is supposed to be fully live with all employers signed up in time for the October 2013 introduction of the government's new Universal Credit System, which covers benefits.
"The sheer scale of waste and mismanagement at HMRC never ceases to shock me. Without even mentioning the tax gap, in 2011-12 the Department wrote off a staggering £5.2 billion of tax owed, overpaid nearly £2.5 billion in tax credits due to fraud and error and underpaid around £290 million," said Hodge.
She added: "In some areas the department is moving in the right direction and has made progress to implement improvement plans. But the department is still plagued by IT problems; limiting, for example, its ability to link together the debts owed by tax payers across different tax streams."
"With its long history of large scale IT failures, the department needs to get a grip before it introduces its new real-time PAYE information systems and begins the high-risk move from tax credits to the Universal Credit."
The NAO report describes HMRC's timescale for implementation of RTI as 'challenging', but states that it has examined ways to improve data quality, which is vital to the success of the operation, and has seen 'signs of improvement'.