HM Revenue and Customs has settled a long-running legal dispute with IT supplier EDS over problems with the tax credit IT system introduced in 2003.

EDS has agreed to pay £26.5m to HMRC settling in full an agreement reached in 2005 to pay a total of £71.25m

A spokesman for HMRC said the department 'welcomes the settlement'.

Confirmation the case has now been resolved brings to an end a bitter and high-profile dispute between the government department and one of the world's largest IT suppliers.

It will also be a relief for the government which has been plagued by a series of high-profile IT fiascos.

Problems with the EDS IT system meant thousands of families were unexpectedly overpaid after the government introduced the tax credit system.

The tax credits were supported by a system built by EDS – then HMRCs main IT supplier.

A spokesman for EDS declined to comment when asked to confirm settlement of the case, saying HMRC were responsible for any communication regarding the outcome.

Further Reading:

Government in "delicate" talks with EDS over compensation payment