The decision not to go ahead with a national external e-mail service in 2002 has been taken despite some staff telling the Revenue that it is "humiliating" to have no means of communicating electronically with suppliers or taxpayers.
The absence of external e-mail is also a blow to the Revenue's parent department, the Treasury, which is playing a leading role in negotiating public service agreements with Whitehall departments to help to deliver Tony Blair's plan for all government services to be available online by 2005.
As part of its own public service agreement with the Treasury, the Revenue spelled out as a key objective the provision of an "e-mail facility for customers to contact their IR [Inland Revenue] office by 2002" in a strategy document published in January this year.
By 2005, says the paper, the Revenue expects that direct contact with taxpayers will be "predominantly through telephone and e-mail".
The Inland Revenue is responsible for the biggest IT outsourcing contract in government, worth £2.8bn over 10 years, signed in 1994 with US company EDS.
As part of that deal EDS has installed more than 55,000 workstations at Revenue offices, running Microsoft Office and other software, at a cost of £200m.
But an internal publication, Revenews, says, "Plans to launch a nationwide service to communicate with customers using e-mail have been put on ice for the time being."
A trial involving 300 staff from 10 offices has found that "thorny issues", mainly related to security, "need to be sorted" before taxpayers can exchange e-mails with Revenue offices. A new trial is not expected to be launched until next year, said Jo Cooke, who heads trials for external e-mail.
"It is likely to be some time before e-mail can be used to communicate outside the department," she said.
She also told Revenews that she acknowledged that there was staff frustration at the lack of a national service. "Problems, which include e-mails getting stuck in the inbox and not being able to link later e-mails with earlier ones sent by the same person, need to be overcome," she said.
Revenue business managers said they are also concerned about the possibility of hackers intercepting e-mails. Dave Evans from the Revenue's security unit said, "Anyone could set themselves up with an e-mail address like email@example.com [Montagu is the chairman of Inland Revenue] so we also have to be sure that e-mailers are who they say they are."
But Craig Gabbatiss, who works for the Revenue's National Insurance Contributions Office, said all of the Revenue's arguments about a lack of security on external e-mail can be "readily countered by anyone with an average knowledge of IT encryption systems".
Simon Fry, who works at a Revenue Enforcement Office in Worthing, said, "When many suppliers are offering e-mail addresses for us to use, it is quite humiliating to have to tell them we are not allowed to e-mail them."
He said that even small local companies have external e-mail access. "Is the department quite happy for us to remain in the dark ages as regards electronic data transmission?"
A Revenue spokesman said external e-mail is provided at 10 offices, involving about 300 staff who are taking part in trials, but she conceded that plans for a nationwide implementation for more than 300 offices and 55,000 tax employees are on hold. "The security of customer data is paramount," she said.