Taxation in Great Britain has a colorful history. There's the legend of Lady Godiva who rode naked through town on a horse to protest high taxes. Later on, King Charles I was beheaded, in part, because of his battles with Parliament over the rights of taxation.

But today, Britain is firmly focused on the future when the subject of taxes comes up. Seven years ago, when Tony Blair became Prime Minister, he set out to give the United Kingdom a competitive edge in the field of electronic commerce, according to Barry Glassberg, director of eServices at Inland Revenue, the country's national tax agency. "Blair wanted the government departments to be exemplars of everything electronic," he said.

Glassberg added that, at the time, Blair probably wasn't sure what he meant by that, but would have told you, "I'll know it when I see it." Today, the prime minister and the rest of Europe can see "it" at the Inland Revenue Web site, where a new portal has opened for individuals and businesses who want to file tax forms online.

The portal, launched in 2000 in partnership with outsourcing giant EDS, is in the vanguard for transforming how Inland Revenue does business. All tax services will be available electronically by 2005. For now, the national agency has converted two functions into Web-based applications. The first is for the self-assessment taxpayer population, which includes the self-employed and high-income taxpayers with complex returns.

Self-assessment affects about 8 million taxpayers in the United Kingdom, according to Glassberg, who explained that nearly 70 percent of the population never files an annual tax return, because their taxes are handled through withholdings with their employers. The more recent application accepts Pay As You Earn (PAYE) forms from business taxpayers.

In the United States, the Internal Revenue Service only accepts returns from tax preparation firms and professionals, such as H&R Block, and from dozens of software vendors. A handful of states, including the Commonwealth of Massachusetts, have set up Web-based applications like Inland Revenue that allow taxpayers to file returns directly over the Internet.

According to Glassberg, Inland Revenue doesn't want to be the sole supplier of tax filing services. "We don't care where the electronic message comes from, so long as we get a slug of XML code," he said. "It goes straight into our back-end systems."

But unlike the United States, the UK doesn't have a well-developed tax preparation industry. So, for now, Inland Revenue is the main source for filing online.

EDS, which has been running Inland Revenue's computers since 1994, developed the self-assessment application in three phases that included an overhaul of existing databases, networking the application with regional tax offices and embedding risk assessment and compliance engines into the electronic forms.

The front-end, taxpayer application was developed by EzGov, an e-government software firm based in Atlanta, Ga. Working on a tight schedule, EzGov and EDS developed the application in just 13 weeks using software made up of components that identify and authenticate users to ensure system security, translate the paper-based forms into Web-based-forms, validate user-information, make calculations, integrate existing data with the new online applications and provide communications with the UK Government Gateway.

The Gateway, which was built by EDS, receives, validates and processes the files from Inland Revenue's front-end filing application and integrates them with data from the back-end mainframe computers.

Inland Revenue ran into some problems with the self-assessment application during its first year of operation. "We struggled, but nonetheless got it up and running and improved it last year," explained Glassberg. The lessons learned from that experience gave the agency the knowledge to build the PAYE business application correctly. "We stepped away from the notion that what we knew best, the customer wanted," he said.

Tod Newcombe  |  Features Editor