Customs warned over IT programme

As HM Customs & Excise (HMCE) prepares to relaunch its online VAT service, the National Audit Office (NAO) has warned that another failure to attract users could threaten its £1bn IT improvement programme.

Next week HMCE will begin piloting an e-VAT system aimed at 250,000 businesses in the IT sector.

The system will allow firms to file their VAT returns electronically. HMCE anticipates that it will be available to all firms by summer 2004.

But the pilot follows a previously unsuccessful scheme launched in April 2001, which was used by less than 0.2 per cent of businesses.

The scheme is aimed at meeting government targets for online services of having 50 per cent take-up by March 2006.

In a report on the HCME e-programme, the NAO warned: "The Department has identified significant potential benefits from implementing the whole e-programme up to 2010.

"However, these benefits may not materialise if important elements such as the take-up of e-VAT returns fall short of the targets."

The initial attempt at the electronic gathering of VAT returns failed because it offered insufficient benefits for users to convert from the relatively easy paper-based system.

The NAO warned that many small and medium businesses would be reluctant to change.

The pilot scheme has already been delayed by six months, after contractual wranglings with IT supplier Fujitsu Services.

HMCE's ambitious project to update its IT infrastructure started with its signing of a £327m improvement programme, estimated to provide operating savings of £4bn. Subsequently, the expected savings were revised downwards to £1.2bn.

At the same time, the department signed a separate private finance initiative deal with Fujitsu Services to supply desktop management services.

The cost of this deal has grown to nearly £930m because of changes in the e-programme. The NAO warned that the final costs are likely to exceed £1bn.

"There is a long way to go to translate the strategy and plans into performance improvements on the ground," said Sir John Bourn, head of the NAO, in a statement.

The difficulty of delivering a 10-year IT programme is compounded by the current government review of HMCE and the Inland Revenue.

Treasury advisor Gus O'Donnell is examining the work of both departments, and may consider merging the two. The NAO warned that IT systems should be compatible to make integration easier in that eventuality.