The Inland Revenue may have to calculate self-assessment tax returns manually following the failure of a software upgrade.
Software developed by Texas-based outsourcer EDS to calculate 1999-2000 self-assessment returns will not run on the new desktops installed in Britain's 600 tax offices last year. The desktop systems were introduced as part of the Millennium Bug-driven Infrastructure (i2K) 2000 project.
EDS and the Revenue were struggling with the problem when EDS director Alan Stevens and Nick Montague, chairman of the Inland Revenue appeared before the Commons Public Accounts Committee last month.
The two men presented a united front, discussing their prudent use of established technologies and describing their relationship as a model partnership between a government department and an outsourcer.
There was no discussion of the problems with this year's self-assessment software, though the Revenue was repeatedly warned that delays in implementing Year 2000 solutions could leave it vulnerable.
In February 1999 David Davies, chairman of the Public Accounts Committee, described Revenue plans to replace key IT systems, including 55,000 desktops, later that year as "staggering".
"The department," he said, "has given itself virtually no leeway and tax revenues will be at stake. It is essential that the department give consideration now to contingency planning."
In July 1999 Leader of the Commons Margaret Beckett, who led the Government's Y2K campaign, "named and shamed" the Inland Revenue over slippage in its date bug programme.
The i2K programme, the largest rollout of Windows NT4.0 in Europe, was completed in time for the millennium, though many tax office staff were extremely critical of the new system's quality.
Some now say the delayed and problematic i2K rollout left EDS with too little time to prepare this year's software upgrades.
The Revenue hopes a solution will be in place within two weeks. "There is no question of asking EDS for compensation," said a spokeswoman. "We are in the early stages of the tax year, which means that few people will have submitted returns."
However, if the glitches persist the Revenue could face difficulties as self-assessment returns flood in to meet the 30 September deadline.
John Whiting, deputy president of the Chartered Institute of Taxation, said the Revenue's problems were "surprising and worrying".
"Let's hope that a touch of over confidence hasn't crept in to the relationship between the Revenue and EDS," he said.
Richard Shooter, chairman of the Institute of Chartered Accountants' Tax Monitoring Group, added, "We have regular meeting with the Revenue and we shall be trying to find out why this was not sorted out before."