Tax chaos as 420,000 told to pay twice

The Inland Revenue has been swamped by calls from confused taxpayers after demanding payment from more than 400,000 people, many of whom have already settled their accounts in full.

Telephone operators at the Revenue's accounts office in Shipley, Yorkshire, described the situation as chaotic as callers jammed the switchboard to query a demand that they pay up immediately or face soaring penalties.

The mass mailshot - believed to have been sent to 420,000 people - tells taxpayers that they owe money and should settle the bill immediately, as interest will increase "every day until we receive full payment". But a number of those who received the de mand have already paid their tax bill, or are even owed money by the taxman. One taxpayer spent two and a half days trying to get through to the Revenue's helpline, at which point the operator confirmed that he had settled his tax bill in June. In another instance a demand for £17,000 had been paid in January.

Adding to the administrative confusion, the letter, known as a Rita 500, does not tell taxpayers how much they owe, but alludes to a statement "recently sent to you". The Inland Revenue admitted yesterday that many people had never been sent a statement.

"People who have got the letter really should know what their liability is anyway," said a spokesman. "It is only sent to people who owe money, so if you got the letter you should not wait for the statement."

Accountants yesterday said the incident showed the revenue was struggling to deal with the enormous administrative burden created by the introduction of self-assessment in 1996-7.

David Gibbs, a tax partner at Grant Thornton, said many accountants believed the present tax system was "very sick" and in desperate need of reform. A number of his clients had been wrongly served a penalty for sending back their returns late, he said, because the Revenue had not processed them in time. "The burden of proof is on the taxpayer, but many people are frightened of the Revenue."

The letter comes after a number of embarrassing gaffes by the Inland Revenue, which admitted in December that more than a quarter of self-assessment returns had been wrongly processed in the previous year. In March last year it demanded £100 penalties from 20,000 people who it incorrectly said had failed to return their forms on time.

Perhaps the most embarrassing mistake came in April 1999, when 680,000 tax returns were sent out asking for information for the wrong year. Accountants were told to cross out the incorrect date and write on the right year with a ballpoint pen. Four months earlier an administrative mistake led to 800,000 customers being asked for twice the amount they owed.

In a survey by the Association of Chartered Certified Accountants in 1999, 96% of accountants said their tax returns had been affected by systems failures or mistakes by the Inland Revenue.