HMRC is set to repay tax to around 2,000 banking and IT contractors who used an offshore scheme because of a flawed process around issuing payment notices.
The tax office issued so-called accelerated payment notices to individuals who used Isle of Man-based schemes to limit their income tax during the 2000s, the Financial Times reports.
But while the arrangements, promoted by Montpelier Tax Consultants, are still being contested HMRC has admited it did not meet all the required conditions before demanding full payment of tax.
Contractors have been targeted by HMRC as part of a high profile campaign to recover billions in tax it believes has been deliberately avoided.
HMRC has issued more than 32,000 accelerated payment notices since 2014. These must be paid with 90 days but are controversial because of the risk of bankrupting debtors.
In addition, critics of the notices say one party should not be able to force disputed tax to be paid until a tribunal or court has made a ruling.