HM Revenue & Customs and US-based outsourcer EDS have reached a £71m out-of-court settlement over IT problems with the launch and operation of tax credit systems.
The settlement involves both an initial up-front payment and subsequent payments over time. HMRC said the settlement was “commensurate with EDS's responsibility for the IT problems which followed the launch of tax credits”.
IT problems contributed to difficulties which saw the government make £1.9bn of overpayments in the first year of tax credits.
HMRC chairman, David Varney, said, “The tax credits IT problems had an adverse impact on many tax credits claimants. We were determined to reach a fair settlement for the taxpayer, and I believe that has now been achieved."
Doug Hoover, EDS managing director for the UK, said, "We were always focused on reaching an equitable settlement. The government remains a very important client for EDS and we are pleased that we have been able to settle this dispute without incurring the costs and uncertainties of what would have been a lengthy and complex legal case."
EDS said the settlement would not affect its guidance on earnings for the fourth quarter of 2005 or the full-year 2006. EDS provided outsourced IT services to the Inland Revenue from 1994 to 2004, when it was replaced by Cap Gemini.