The National Audit Office has warned that Customs and Excise is taking a "big risk" in implementing its £300 million IT system.

In a report released on Thursday the watchdog said the system was performing well in its early stages but should be developed with care.

The report found that the use of electronic technology to improve the government agency's efficiency had so far been a success.

"They [Customs] have made good progress in getting their core business areas to accept the new programme and have set clear responsibilities for delivery," the authors concluded.

As a result, the body can expect to make efficiency savings of up to make efficiency savings of up to £1.2 billion between 2001 and 2010.

However the NAO highlighted the fact that take up of electronic VAT returns has been "disappointing".

And the powerful spending auditor added that there were inevitable risks involved in the use of IT such as the potential breakdown of the system or the production of inaccurate information.

NAO chief Sir John Bourn said that Customs should be pleased with the system so far.

"Customs and Excise have made good progress in getting their electronic service delivery programme underway," he said.

"The programme is, however, at the early stage of its development and there is a long way to go to translate the strategy and plans into performance improvements on the ground.

"An IT programme of this magnitude inevitably presents some large risks and our report recommends to Customs how to address these risks."