John Stokdyk - A Phantom Menace hits the screen

As if the taxation system didn’t have enough to cope with – Bill Gates now wants to get his hands on it.

Microsoft, the US software supplier that brought us Windows, styles itself as ‘The Great Enabler’. It aims to provide the backbone – or ‘digital nervous system’ – to let customers computerise their operations.

But in the quest to expand its already awesome share of the software market, Microsoft is always broadening its horizons. As well as Office applications such as Word, Excel and PowerPoint, it also sells a personal accounting package, Money, and has bundled financial analysis tools into the Small Business Server suite.

With the recent launch of TaxSaver 99, Microsoft dipped its rather hefty toe into the waters plied by UK tax specialists. By giving consumers a DIY tax return tool, Big Bad Bill could potentially snatch the daily crusts not just from taxation software suppliers, but also from the accountants who use their packages.

But you have to wonder if Gates & Co know what they’re getting into.

Tax does not conform to Microsoft’s traditional mass market model and is one of the software industry’s most competitive sectors. There is very little tolerance for errors from developers who have got to respond quickly to changes in legislation and tax procedure. Updating the software of 9.5 million customers every year is not a trivial task.

But behind the scenes, there is method to Microsoft’s TaxSaver initiative.

The UK product, developed with the help of Exmouth-based Digita, set the scene for a similar product in the US, where filling out Internal Revenue Service tax returns is an annual ritual.

If consumers could file their returns electronically, the potential administrative savings for governments would be impressive.

In the UK, Microsoft and its partners have already constructed a prototype website for the Inland Revenue, which was demonstrated last December.

It is a small step to connect the TaxSaver package to the Internet. Only taxpayers’ privacy and the lack of an electronic signature mechanism stand in the way of the government achieving its aim of collecting digital returns.

To calm the growing anxiety of tax agents, the next version of TaxSaver – due to be released next April – will include a link to a website that will allow users to find the names and addresses of local accountants.

The taxpayer will then be able to email the tax form, with any queries, to an adviser.

It is hard to argue against the obvious advantages of an Internet-based tax mechanism. But when a company only half-jokingly known as ‘the evil empire’ plays such a pivotal role in shaping the future of the tax system, there are bound to be a few raised eyebrows. Especially among a profession that has grown intimate with the quality of service delivered by the Revenue’s prime IT outsourcing partner, EDS.

For all of its undoubted success at selling integrated office applications and computer operating systems, Microsoft’s attitude is very much ‘do it our way or don’t bother us’. This is a philosophy that probably doesn’t seem out of place within the Revenue.

Turning to Microsoft for an instant fix is understandable, but seasoned observers warn about the consequences.

‘Computerising submission of the tax return only compounds what is an over-engineered situation,’ says Keith Daniels, past president of the Chartered Institute of Taxation.

Instead, he argues that the entire tax system should be overhauled to cater for the IT age. Rather than leaving it to a few programmers and consultants, the project would benefit from the input of people who have first-hand knowledge. Daniels has long been lobbying for a tax reform forum that would bring together a truly representative panel of politicians, tax professionals and business people. There could even be room at the table for Microsoft.