A catalogue of errors, which could cost the taxpayer hundreds of millions of pounds, was exposed when the Inland Revenue owned up to mistakes over a controversial sale of properties to a company based in Bermuda, a British newspaper has reported.

Sir Nicholas Montagu, the Inland Revenue's chairman, made the rare admission when he told a cross-party committee of MPs that his department had issued misleading information about the sale. According to The Guardian, MPs on the Commons treasury select committee summoned Sir Nicholas after the revenue admitted selling its entire property portfolio of 600 buildings to a company based in Bermuda, despite a government crackdown on tax dodges in offshore islands.

Under the deal, which was highlighted in the Guardian in September, the revenue sold the properties to Bermuda-registered Mapeley Steps and then leased them back. In a press release, the revenue falsely claimed the deal was signed with Mapeley Ltd, which is registered in Britain. MPs were astonished when Sir Nicholas admitted the revenue had compounded its mistake by effectively underwriting the deal, which was worth well over ?100m, The Guardian reported last Thursday. When the company reported that it was facing financial difficulties, the revenue wrote a letter to the company "to provide reassurance to Mapeley's shareholders".

In a written statement to the committee, Sir Nicholas reportedly said the Treasury officer of accounts had ruled that the revenue's letters "may constitute letters of comfort within the meaning of government accounting".

This means that taxpayers could be liable if the company defaults. David Laws, a Liberal Democrat member of the treasury select committee, is quoted as saying: "This is the most extraordinary catalogue of cock-ups and cover-ups. It is clear that the Inland Revenue and customs and excise accidentally put themselves in positions where they allowed the taxpayer to underwrite the financial risks taken by a company based in an offshore tax haven.

"This sorry tale raises serious questions about the credibility and competence of the Inland Revenue and customs and excise."

In his statement, Sir Nicholas said that the board of the revenue was told Mapeley Steps was registered in Bermuda a few days before the contract was signed in March 2001. Ministers were not told and the decision was not reversed because the law could only have prevented a deal with a company involved in tax evasion, which is illegal, rather than the legal practice of tax avoidance.

According to The Guardian, the chief executive of Mapeley Steps, Robin Priest, defended the deal earlier this year. He told BBC News Online the benefits of the company's tax position would be handed back to the government through a lower lease charge each year.