EDS has paid off the government in full for a £71 million settlement made in 2005 over a failed tax credit IT system.

The system was launched in April 2003, but problems led to large overpayments being made. Some £6 billion tax credit overpayments were made in the first three years, according to the Public Accounts Committee in a reportone year ago, and estimates put the cost of fraud and error at £1 billion every year.

EDS stopped working on the programme in 2004, and Capgemini took over under the £8.5 billion Aspire contract. A settlement was reached in November 2005 between EDS and HM Revenue & Customs.

EDS has now paid off the remaining amount, which has not been disclosed but is a proportion of the £71 million figure, in one lump sum. Last year, the Public Accounts Committee, a powerful group of MPs, criticised EDS for a slow rate of payment, saying it would take EDS 106 years to pay the government at the then-current rate.

At the end of 2006, EDS had only paid £250,000, HMRC revealed last year.

HMRC said in a statement that it “welcomes” the decision by EDS to pay off the remainder of the settlement. EDS declined to comment.

The original payment terms under the settlement were controversial, because they included staged payments of up to £26.5 million, which were dependent on EDS winning new government business.

But while the settlement addresses the relationship between HMRC and then-supplier EDS, reports in recent months have suggested the system was still malfunctioning at a heavy price.

In July last year, reports stated £2.8 billion would be lost following overpayments of tax credits that could not be recouped. HMRC denied the reports and said its systems were functioning well.

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