The “flawed” implementation of a new National Insurance and Pay As You Earn system by HM Revenue & Customs is still causing “chaos” in tax processing two years later, according to a powerful committee of MPs.

The Public Accounts Committee said that the 2009 implementation of the NPS system “has resulted in lasting and costly losses for the Department and caused unacceptable uncertainty and inconvenience to the taxpayer”.

The poor system implementation meant that the tax office had “failed” once again in its duty to process PAYE accurately and on time, the committee said.

Even though HMRC knew that seven million people had paid the incorrect tax in the 2008-9 financial year, it did not inform individuals until four months ago, because of problems with the NPS system, the committee noted.

HMRC has now committed to “stabilise” the NPS system by next year. The committee said that in future the tax office must commit to processing everyone’s PAYE “within twelve months of the end of the tax year”.

Richard Bacon, a member of the committee, also heavily criticised HMRC over its appointment of an acting CIO for three months on a salary with an annual equivalent of £600,000.

“As if paying the acting CIO four times his previous salary was not generous enough, HMRC then spent a further £20,000 helping him to find another job afterwards,” said Bacon.

“HMRC could easily have planned for an orderly transition to its new CIO and it speaks volumes about [its] approach that it did not."