Tax credits resolution imminent

HM Revenue & Customs’ long-running tax credits dispute with IT supplier
EDS is set to come to a head in the next fortnight.

The talks will either result in a legal claim being lodged or a settlement
being reached, but if a settlement is agreed, it could be a further two weeks
before the deal is announced.

The former Inland Revenue has been in talks with EDS to seek redress for
failures in the tax credit system since July 2003. Accountancy Age
revealed earlier this year that the department was prepared to go to court over
the system problems that blighted the introduction of the credits two years ago,
and that HMRC was seeking at least £100m compensation.

Those talks have now reached a climax, and although EDS is understood to be
reluctant to pay hundreds of millions in compensation, some have speculated that
the IT supplier would settle for less than the costs they would incur in a court
battle, which could reach £50m.

The prospect of court action holds risks for both sides. EDS would not want
to continue to antagonise the government, a key client, while ministers are
unlikely to want to take the stand in court. Any case is unlikely to reach court
before 2007.

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