The transfer of the Inland Revenue's IT services and staff from EDS to Capgemini on 1 July is unprecedented in the history of UK outsourcing.
The project to hand over staff and IT systems from EDS to Capgemini is the largest of its kind ever undertaken in the public sector.
The Inland Revenue's outgoing and incoming suppliers have all worked hard to reduce the risks associated with the project, but taxation professionals and business leaders are concerned about continuity of service during the handover period.
Over the past five years, IT problems at the Inland Revenue have contributed to a series of problems including poor service for online self-assessment tax returns, an acute failure of the tax credit system and the sending out of 500,000 false penalty notices for late self-assessment returns.
John Whiting, tax partner with PriceWaterhouseCoopers, said, "Taxpayers and their advisers want a smooth continuation of service, flowing correspondence, and the self-assessment website to be up and running. This is not profound, we all just want the same things."
The number of people being penalised for late delivery is still too high, running at more than 10%, Whiting said. The source of these problems was not clear, but IT could be a factor. "Every way we deal with the Inland Revenue now involves computers at some stage. There are worries about how robust the system is and we are worried about outages," he said.
Accountancy professionals were also concerned about the changeover date for the project. Chas Roy-Chowdhury, head of taxation at accountancy body ACCA, said any failure could affect professional reputations. "It takes time to clear up any errors with the Inland Revenue, something for which there is no compensation.
"It is clear we need continuity in the system. Business should not be blamed for any problems that arise that show that taxpayers have made a mistake when they have not.
"The Inland Revenue needs to accept there will be teething problems and give some leeway to taxpayers in case of errors. We also need to watch that taxpayers are not paying an increased amount. We need to carefully monitor the transition."
A crucial date for testing the handover will be 31 July, when self-assessment payments are due, Roy-Chowdhury said. "The Inland Revenue needs to be pragmatic for a while and not accuse people of late tax returns."
An Inland Revenue spokeswoman said, "The risks have been evaluated and contingency plans put in place. EDS and Capgemini have worked with us on this. A lot of preparation has been going on ahead of this date, since the contract was signed in December. Some of the transition has already taken place."
The Inland Revenue would not give details of contingency plans because of commercial confidentiality.
Despite these assurances, small businesses are concerned they could be affected during the transition period. David Bishop, spokesman for the Federation of Small Businesses, said, "The fact that EDS lost the contract points to the huge difficulties small businesses face [with the tax systems] on occasions.
"What we see increasingly from the government is the carrot-and-stick approach to getting small businesses to do everything online for tax. We recognise this is a logical step, but we know that the unreliability of the IT systems has not given business people the confidence to use them.
"This contract represents a new start, but there is a huge danger that in the short term things could get worse. If the government is serious about businesses filing tax online, it needs to reassure the business community that the change will not affect individual business users and that things will get better in the future."
Capgemini works with IT staff union on transfer
The Inland Revenue, EDS and Capgemini have put considerable effort into handling the transfer of staff to the new contractor.
About 2,250 employees are set to join Capgemini from EDS, with more than 900 staff joining Fujitsu Services under Transfer of Undertaking for Protection of Employment regulations, which protect employee rights when they are outsourced to an external service supplier.
Staff commitment and morale will be important in ironing out any problems that may emerge, and Jim Hanson, national officer for the Public and Commercial Services union, which represents civil servants, said the union had been involved in substantial discussions with EDS and Capgemini.
He said there were ongoing negotiations with Capgemini over a new pay deal for staff, which were going reasonably well. However, he added that problems tend not to occur at transfer, but two years down the line.
Pensions would be a major concern, but Hanson was hopeful the union could reach a satisfactory agreement with Capgemini.
July 2000 EDS, the Inland Revenue's IT outsourcer, abandoned its efforts to produce online income tax self-assessment software for the current tax year. It signed a deal with Microsoft to send out CD-Roms of its Taxsaver 2000 Lite software to thousands of taxpayers who registered for online filing.
February 2001 The Inland Revenue has £22m in overpaid taxes because of its inability to reconcile data in its national insurance Paye systems. According to the National Audit Office, the Inland Revenue effectively closes more than one million tax files without checking because it would not be cost-effective to do so.
April 2003 Officials at the Inland Revenue confirm that the department is to meet some of the costs of companies that bid against EDS and Accenture for the Aspire contract. The agreement to pay nearly £9m towards the bids, the first time this has happened on a non-defence contract, is seen as tacit acceptance that without such an incentive no strong competitors would have come forward.
July 2003 A committee of MPs urges the government to demand compensation from EDS after hundreds of thousands of people do not receive their tax credits on time. The Labour-dominated House of Commons treasury select committee also warns EDS to get its house in order as it is part of a consortium working for the Department for Work and Pensions.
November 2003 The Inland Revenue loses up to £2bn in overpaid tax credits and the new IT systems that should help rectify the problems are not working properly, says a National Audit Office report. The report highlights a series of shortcomings, including the testing of IT systems supporting the new tax credit payments.
December 2003 US outsourcer EDS loses its 10-year IT services contract with the Inland Revenue. Capgemini is selected as the supplier for the Aspire contract, which will modernise tax and national insurance systems. EDS is heavily criticised by MPs on the House of Commons Public Accounts Committee for problems with the introduction of tax credits.