As of March this year, 18.2m cases were unresolved with as much as GBP3bn in tax refunds likely to be involved. Cases of underpayments, where HMRC may have to recover tax, could amount to GBP1.4bn.

The Head of the NAO said: “The Department has not made enough progress in reducing the backlog of 18.2 million income tax cases where there is potentially overpaid or underpaid tax. It also needs to improve its collection rate for tax credits debt, which is substantially lower than that for tax debts.

Problems with a new IT system are partly to blame for the delays, with the cost of the new system now reaching GBP389m.

"The administration of tax in 2009-2010 by HM Revenue and Customs has been influenced by three broader issues: the recession, which has increased the value of tax debt to be recovered; the pressure on the Department to streamline its processes; and the effectiveness of its information systems," the NAO said.

"Those systems need to be developed so they improve the Department's ability to monitor and assess the targeting and performance of its debt collection campaigns and to design future interventions in the areas of greatest risk," the Audit Office added.

A spokesperson for the Chartered Institute of Taxation claimed that cuts in HMRC’s resources were responsible for the delay in clearing unresolved cases, saying that the cuts have "stretched HMRC to the limit."

Members of the UK2000 Group of independent accountancy and law firms have commented on the Revenue's backlog. One member, Alan Boby, tax partner, Ellacotts, said:

"Yesterday’s report from the National Audit Office suggests that each of the 18 million taxpayers who are part of the backlog are owed an average of GBP150 in overpaid income tax by HM Revenue & Customs."

"These statistics are surprising in two ways. Firstly, government statistics say that the total UK workforce consists of 29 million people which means that a large proportion of them (more than half?) are in the backlog. Secondly, the apparent overpayments of tax averaging GBP150 per person are greater than the increase individuals will face in income tax following the latest Budget!"

“Our experience as accountants is that the efficiency with which HMRC process tax returns and pay tax refunds is extremely variable. In general, self-employed and employed taxpayers are dealt with promptly if they have a tax agent acting on their behalf. However, repayment tax cases (using tax forms R40) are often delayed and if the repayment claim forms are submitted on paper it is often six months before a tax repayment is received by our clients. There is clearly a Luddite penalty for those taxpayers filing repayment claims on paper but these are often the very people that do not easily convert to new technology and cannot afford it anyway! In addition, much of the proprietary software used by tax agents does not cater for online filing of forms R40."

“Recent encounters with tax overpayments show that once tax cases fall into the backlog they take much longer to get resolved and more up-to-date cases are given priority. Furthermore, there is clear evidence that particular tax offices are struggling with resources (for example those dealing with non-residents) and so anything out of the ‘main fairway’ is much more likely to sit in the ‘long grass’.”

The report comes in the same week as the government announced the creation of the new Office for Tax Simplification.