Taxman's £236m IT nightmare

The government has revealed that a total of £236m — exclusive of VAT — has been paid to both EDS and Capgemini for the IT systems behind the disastrous new tax credits system.

HM Revenue and Customs (HMRC) is currently in a stand-off with EDS over compensation for a litany of IT problems that led to massive overpayments and is threatening to take the supplier to court.

The tax credits system has been called a "nightmare" by MPs and a report by parliamentary watchdog the Public Accounts Committee has questioned HMRC's ability to rectify the problems.

The tax credits IT system went live in April 2003 under an outsourcing contract with EDS. When this contract ended Capgemini took over the running of the system from 1 July, 2004.

Paymaster general Dawn Primarolo has now revealed the full cost of the IT system in answer to a Parliamentary Question this week.

She said: "The identifiable costs paid to these suppliers for running the IT tax credits system up to 31 August, 2005, including costs in the pre 'go-live' stages, was £236m, exclusive of VAT."

Earlier this month HMRC repeated its threat to take legal action against EDS over the IT problems. The software errors are estimated to have resulted in overpayments to 455,000 households in 2003 totalling almost £100m.