While the exact details have not yet been fixed, the scale of any distress payments is likely to be small and they are only likely to be made in "exceptional" cases, the Revenue said last week.
The payments are part of the Revenue's continuing charm offensive, designed to improve its levels of service and the public's image of its work, and came to light as the independent Revenue watchdog - called the Adjudicator's Office - published its second annual report. This showed an increase in enquiries to the watchdog of about 60 per cent to 2,600 in the year to April.
The adjudicator, Elizabeth Filkin, can deal with complaints about the handling of tax affairs, such as delays, errors and discourtesy. Her services are free but she does not consider issues of tax law or liability. Before complaining, people are expected to give the relevant department a chance to sort out the matter first.
Many of the enquiries last year were straightforward, but of the 381 cases where an investigation was completed, the adjudicator found in favour of the complainant at least half the time.
Complaints dealt with by her office included:
q That an investigation into someone's tax affairs lasted five years and involved four different tax inspectors. The complainant was awarded pounds 500 towards his professional fees incurred in dealing with the Revenue's poor handling of the case.
q A pensioner complained that the Revenue had delayed changing his tax code when he retired, forcing him to pay too much tax for six months. The pensioner was awarded pounds 15 by the adjudicator for the interest lost on the savings he was forced to withdraw to tide him over.
q A building contractor was awarded pounds 7,000 compensation after incurring financial losses as a result of financial advice given to him by the Inland Revenue. He had been told that if he sold a property within 12 months of purchase he would not have to pay capital gains tax on the sale.
The latter compensation payment was the biggest last year. There were 80 compensation payments totalling pounds 36,000.
Ms Filkin said that much of the work carried out by tax inspectors was of a very high standard. But she added: "We have found that some investigations have involved a disgraceful waste of public money ... the Revenue's own procedures are not followed, sometimes with distressing results.
"At times it seems as if they have made up their minds before they start, or have a blanket view of certain trades - primarily those where people are paid in cash - and proceed on that basis regardless of the facts of the case."
In some instances, the Revenue's refusal to acknowledge its mistake and offer compensation for genuine financial loss - which it is bound to do - resulted in costs many times greater than the amount in dispute, she added.
The Adjudicator's Office also deals with complaints about Customs and Excise and the Contributions Agency.
q The Adjudicator's Office, Haymarket House, London, SW1Y 4SP. Tel. 0171 930.2292.