Red faces as Revenue assesses computer bungle

The Inland Revenue is battling to salvage a multi-million pound project to computerise the new self-assessment tax return form after a series of delays and embarrassing technical problems.

The Revenue has launched a review into the scheme - the Electronic Lodgement Service (ELS) - after admitting last week that 20 per cent of returns sent through the new computer link were being rejected by the equipment.

Managers have also had to apologise to at least one accountancy practice after mistakenly sending out the wrong batch of security passwords. Brian Handley, project manager, blamed the mistake on a clerical error. "It was very unfortunate. I personally apologised to the person concerned. We're trying to make sure it'll never happen again."

When it launched ELS in April, the Revenue said it expected 500,000 tax returns to be sent electronically by the 31 January closing date for self- assessed forms The three-year-old project includes EDS, the computer giant responsible for many civil service networks, and defence to telecommunications group Racal.

Yet almost four months after its launch, only 900 tax returns have been submitted, of which almost 200 have been inexplicably rejected, despite being correctly completed. Of the 3,000 firms of accountants and tax assessors, known in the trade as agents, which have applied to join the ELS network, only 160 have made it.

Software companies, which have devised Revenue-approved computer programmes with the form on-screen, blame the Revenue and its partners for the mess. They claim that special software, which scrambles the data before sending it down a modem, was supplied with in-built errors.

Andrew Bolton, from the Surrey-based Quality Management Software, praised the idea behind the project, but not the execution. "I want it to work, because we've put a lot of time and effort into the project. But there are still problems with the Revenue's software and hardware which have not been corrected. We hope they are going to be sorted out soon."

Mr Handley said the review would look at every aspect of the system, including the role of EDS and Racal. He said if extra spending was needed it would be through a mixture of sources, though he declined to give details of the contracts with the two companies. The official budget for ELS was pounds 3m for this year, although sources in the computer industry suggested other costs could have been passed across to the bigger self-assessment budget.

The money-saving potential for the Revenue is huge. ELS by-passes local tax offices where staff numbers are being cut. To encourage agents to go on-line, the Revenue is sending out free modems worth around pounds 50 each.

The Revenue insisted ELS would not suffer the same fate as other high- profile computer projects, such as the Stock Exchange's ill-fated Taurus system. "What we've experienced is obviously not unexpected when you are trying to remove the paper chain and that doesn't happen easily," Mr Handley said.

"At the moment a higher number of returns is being rejected than in the longer term. The reasons can generally be described as teething troubles. We've identified... minor problems in our own area."

Despite the delays, the Revenue warned that forms submitted late using the ELS system would incur the same interest penalties as those sent through the post.