The distress payments come as the Inland Revenue moves towards a more user-friendly image, including its drive to persuade more people to claim tax refunds they are entitled to.
Talks between the Revenue and the Adjudicator's Office, the watchdog now dealing with tax complaints, are expected to lead to a new code of practice later this year.
Organisations already able to recommend compensation for distress suffered include the Insurance Ombudsman, the Local Government Ombudsman and other financial services arbitration watchdogs.
Although the principle of compensation for distress has been agreed by the Revenue, exact details, including the amount to be paid, have still not been worked out, said Elizabeth Filkin, the Adjudicator.
David Richardson, a senior manager at the Office, added: "There are two principles involved. One is that the Revenue will only be prepared to pay compensation in exceptional cases. The second is that they are not looking to make huge payments. But if they pitch the figure too low we will be going back to them and asking for the sums to be raised."
Ms Filkin's comments came at the publication of her watchdog's report for the year to April. This showed that complaints grew to almost 2,600, about 60 per cent more than the 11-month period after the office was first set up in May 1993.
The rise was largely due to greater public awareness of her role.
Most of the cases involved simple requests for advice. About 500 complaints were taken on for full investigation. More than 50 per cent of the cases dealt with were found in favour of the complainants.
Compensation of pounds 36,000 was paid by the Revenue for losses suffered by 80 of the cases the Adjudicator found in favour of.
The largest payment, for more than pounds 7,000, was to a building contractor who claimed financial loss as a result of incorrect advice from his tax office.
Ms Filkin said: "I have seen many example of very good work. But I have also seen examples of poor work, where taxpayers have been put to unnecessary expense and misery by thoughtless and indept behaviour by some Inland Revenue staff and managers.
"Many complainants have told me of the exasperation they feel when dealing with the Inland revenue. I sympathise with them. On many occasions, I have noticed a tendency by some people in the Inland Revenue to create what seem to me to be mountains out of molehills."
A Revenue spokesman yesterday said: "We share the Adjudicator's concerns about cases where we failed to deliver the service taxpayers are entitled to expect and recognise the personal distress that can sometimes be caused where things go wrong."Reuse content