HM Revenue & Customs awarded its acting CIO a pay packet worth £600,000-a-year pro rata in order to retain his services as a major implementation took place, a committee meeting has revealed.

Acting CIO Deepak Singh played a key role in HMRC’s controversial IT refresh, which includes the delayed implementation of a new National Insurance and Pay As You Earn Service (NPS) IT system.

Due to this delayed overhaul, the National Audit Office recently found that 18 million PAYE and National Insurance cases await action, having been ‘potentially overpaid or underpaid’.

Furthermore, six million people have been found to have been incorrectly taxed since 2008, with 1.4 million people facing an unexpected tax bill.

At a Public Accounts Committee hearing yesterday, HMRC chief executive Dame Lesley Strathie revealed that Singh was offered the new pay packet to stay on an extra three months as interim CIO after he applied unsuccessfully for a permanent position in January last year. He had been acting CIO since October 2007.

Singh lost out on the permanent CIO role to Phil Pavitt, who was unable to start immediately due to a six-month release contract.

Therefore between the end of his fixed-term contract, 19 June 2009, and 18 September 2009, HMRC paid Singh £149,500 as a contractor through his Orwell Consulting business, to fill the gap. Equal to around an annual salary of £600,000, Singh’s pay for three months was almost as high as his previous 12-month salary of around £160,000.

On top of his contractor pay packet, HMRC also paid Singh £19,200 as a benefit in kind for “outplacement services”, which Dame Lesley admitted involved employment counselling and help for Singh in finding another job.

Dame Lesley said that HMRC decided to pay Singh his contractor rate in order to have someone in place to manage the ongoing implementation of the new PAYE systems.

“[Singh was retained] to de-risk the implementation of MMPC3 (Modernising PAYE Processes for Customers phase three) and to deliver a very large commercial renegotiation of our contract with Aspire,” she said.

"Very simply, he knew that he wasn't getting the job, he knew there was a new CIO coming, he knew there was a massive programme to land. We had the commercial negotiation.

"He was not interested in another short term contract on the same basis."

She added: "One of my choices would have been to go to market to try to find an interim. It would not have been any cheaper. And secondly they would have been starting from a low knowledge base.”

The Public Accounts Committee meeting also revealed that only a “minority” – fewer than 20 per cent - of taxpayers who have received letters about owing extra money to HMRC will be able to have the tax written off.  

Underpayments caused by a HMRC mistake can be written off under the extra-statutory concession, but HMRC’s director of PAYE, self-assessment and national insurance, Sarah Walker, said that at present, “only a minority of the underpayments are caused by Revenue error”.