THE government faced a new data row this weekend after it emerged that HM Revenue and Customs has set up a secret “two tier” security system for online tax records giving extra protection to a small group of MPs, royals and other VIPs.

The Tories protested about the government’s “double standards” after the HMRC admitted that 29m ordinary taxpayers did not benefit from the same high levels of protection as MPs and other members of a small elite.

Consumer groups said the government’s admission that the majority of the 29.7m tax records were less secure than those of a few thousand “high profile” people was “shocking”. They claimed the department had lost the confidence of the public.

Although the HMRC denied that the security of its online computer system was in doubt, a spokesman admitted that there were “bad apples” in the organisation who could present a risk that data would be compromised.

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Tax records contain home addresses, bank account details, national insurance numbers and details of savings and investments, all valuable to fraudsters.

HMRC was at the centre of a major political row last year after it lost 25m child benefits.

The latest row comes as hundred of thousands of people are expected to use the electronic system in the run-up to this weeks January 31 deadline for tax returns.

The agency is expanding the system and anyone wanting to file a self-assessment tax return after October will have to do so online or face stiff penalties.

Under the elite system, staff working at HMRC who snoop into the tax files of celebrities or MPs are instantly identified by an automatic warning signal and subject to disciplinary action — usually dismissal. The alerts are only connected to the accounts of well known figures, and not members of the public.

The HMRC admitted yesterday that “a small minority of people” will not be using the online system because they are MPs, peers or other VIPs who have been given extra protection.

A spokesman said that unlike the majority of the 29.7m taxpayers in Britain, these people have been given an extra digit in their tax code which can not be recognised by the online system. Instead they are being asked to send hard copies of returns.

The spokesman said that the tax recrods of all MPs, members of the House of Lords, and other VIPs were kept at a separate office in Cardiff. The office was set up in the 1970’s to provide extra security for the tax files of public figures whose security was deemed to have been at risk during the IRA’s terrorism campaign.

Asked if the extra security measures meant that the department didn’t trust its own employees to deal with sensitive data, she said: “The system is secure. We do trust our own people but as with all things there are bad apples.”

Mark Wallace, campaigns director for the Taxpayers’ Alliance, said: “Its shocking that HMRC and Treasury ministers have been going round encouraging the public to use a system that they know is not secure. Revenue and Customs have lost the confidence of British taxpayers and they are failing spectacularly to win it back.

“It is essential for democracy that MPs have to use the same systems as their voters. A double standard is unacceptable.”

Mike Warburton, of accountants Grant Thornton, said his firm had previously raised concerns about the security of online filing system. Those doubts had now resurfaced because of the disclosure that MPs were not permitted to use it.

“Either the Revenue have a system that can guarantee confidentiality for all or they should defer plans to force online filing. It is extraordinary that MPs and others enjoy higher security,” he said.

The two tier system was discovered by Andrew Robathan, the Tory MP who challenged a letter he received from HMRC saying he could not file online.

Jane Kennedy, a Treasury minister, told him: “There are categories of individual for whom security is a higher priority. Not just MPs - there are several categories — and HMRC does not have the facilities for them to file online.”

A Revenue spokesman said: “I tiny minority of individuals’ records, including MPs, have extra security measures over and above the very high standards of confidentiality with which HMRC treats all taxpayers’ data.

“The separate arrangements mean they are unable to use the online service because their taxpayer reference number will not be recognised by the authentication system.”

The Revenue said it was trying to change the system so eventually everybody would be able to file online.

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