Bermuda hit the headlines in the UK press yesterday - after Britain's Treasury admitted that mistakes had been made by its tax collection arm in selling 600 government buildings to a Bermuda-based company in a bid to save on the nation's tax bill.

The matter has been an embarrassment to the British Government as the Chancellor of the Exchequer Gordon Brown was at the time at the forefront of a campaign by the European Union to clamp down on so-called tax havens.

The Treasury in a report yesterday said there had been "clear failings" in the matter and said it would take steps to prevent tax avoidance by government contractors. Successful bidders will be restricted from "taking advantage of offshore tax havens,'' the Treasury said in its written reply to the findings by the lawmakers' committee.

Responding to criticisms by a committee of lawmakers overseeing economic policy, the Treasury said it should have pressed Bermuda-based Mapeley Steps Ltd., which is backed by financier George Soros, to register itself in the UK before selling the properties to the company.

Under the deal, brokered in 2001, the Inland Revenue's entire property portfolio was sold to Mapeley so it could then be leased back to the Revenue on favourable terms - avoiding capital gains tax.

The Revenue initially said the deal, codenamed Steps, the Strategic Transfer of the Estate to the Private Sector, had been done with a UK-registered firm but it later admitted the sale had been to an affiliate registered in Bermuda

The Treasury statement raises questions about the future of Sir Nicholas Montagu, the chairman of Inland Revenue who had a hand in approving the $360 million (?220 million) transaction.

In its formal response to criticisms of the controversial outsourcing deal by the Commons Treasury Select Committee, the Treasury criticised Sir Nicholas's handling of the project. It also undermined the Revenue chairman by showing that the argument he used to defend the property transaction before the committee was incorrect.

Sir Nicholas will now be called back before the committee next month to explain why he claimed, wrongly, that EU laws prevented him from excluding the offshore company, Mapeley Steps, from bidding.

The Treasury demanded that the Revenue tighten management of procurement to ensure a similar deal could not go through again without the Board and Ministers having full knowledge of what was involved. It has asked Sir Nicholas to review governance and accountability within the Revenue by September. At present, it said, there are "clear failings" in internal procedures.

Norman Lamb, Liberal Democrat MP for Norfolk North, said: "Someone needs to take responsibility for this monumentally embarrassing saga and there is a case for change at the top of the Revenue."

"The committee considered these to be serious lapses in the standards required of officials,'' said Michael Fallon, a Conservative Member of Parliament who headed a probe by the committee into the transactions.

In September, Inland Revenue said it transferred ownership of the buildings to Mapeley and would lease them back as part of the Treasury's effort to get best value for taxpayer money. Inland Revenue initially said Mapeley was a UK-registered company, then later said Mapeley had transferred the buildings to a Bermuda-based unit.

Mr. Brown has been publicly battling against tax dodgers and has pushed Luxembourg and Switzerland to tax interest paid on accounts held by EU residents.

Mr. Soros became prominent in 1992 when his hedge fund made a $10 billion bet against the British pound that helped push sterling out of the European Union's Exchange-Rate Mechanism, a currency peg to the former German mark that preceded the Euro. The Hungarian-born billionaire pocketed $1 billion.

The Treasury has now issued orders for all agencies involved in Private Finance Initiative schemes to insist that successful bidders do not exploit tax havens in future, in line with "stated objectives for tax transparency and openness".

The Revenue said Sir Nicholas would not resign: "We remain of the view that the Mapeley Steps contract offered the best value for money to taxpayers."