The taxman has warned IT supplier EDS that if it does not speed up settlement payments for its handling of the tax credits fiasco it will face legal action.

Appearing before the public accounts committee last week, HM Revenue & Customs chairman Paul Gray said he had met senior EDS management who had agreed to accelerate the payment of the £27m the company still owes HMRC under the £71.25m settlement agreed in 2005. The new deal begins in January 2008.

‘We have been making clear to EDS that the present level of payments can’t continue indefinitely. We have agreed steps which we believe will accelerate the rate of payments. I am making absolutely sure that should it prove necessary we will turn to litigation,’ Gray said.

According to committee member Richard Bacon, it would take 106 years for EDS to pay its outstanding debt, which under the 2005 deal is determined by how much work EDS wins from the government.

Gray said: ‘I have been discussing with our lawyers a process for bringing the matter back to the courts if the acceleration of payments next year does not meet my expectation.’