HMRC takes legal advice as EDS talks fail

HM Revenue & Customs is ‘considering its legal options’, after
negotiations with systems supplier EDS for compensation over the failed tax
credits system broke down.

Accountancy Age revealed in June that HMRC was considering making a
High Court claim for up to £100m in compensation, unless an agreement could be
reached. But a House of Commons Public Accounts Committee report out today
reveals that the talks have failed.

The PAC said that routine computer housekeeping software was at fault for
wrongly deleting nearly a million taxpayer records from 1997 to 2000.

As a result, some 364,000 people have been underpaid a total of £82m, an
average of £226, and 22,000 people have been overpaid by around £6m, an average
of £259.

The report said that HMRC became aware of the problem in 2003 when it
introduced a new IT system. It has been backing up files due for deletion since
then. The PAC said deletions occurred in earlier years, but the numbers involved
were ‘much smaller’.

Committee chairman Edward Leigh described the introduction of the tax credit
system as ‘a nightmare’. He said there was still no reliable evidence from HMRC
‘that the flood of public money being wasted under the previous tax credits
scheme through fraud and error has been stemmed to any degree’.

He added: ‘Hundreds of thousands of genuine claimants, many of them
vulnerable people in very difficult circumstances, have been seriously
mistreated.’ The ‘frustratingly arcane’ system routinely overpaid large numbers
of claimants, he said, who subsequently had to cope with repayment demands.

Leigh added that HMRC chiefs should have warned ministers of the risks before
rushing ahead with the tax credit system.

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