Businesses or individuals who have lost out because of serious errors at Revenue and Customs will be able to sue for damages following a landmark legal victory yesterday.

The unanimous decision from the Court of Appeal is expected to prompt a barrage of claims from disgruntled taxpayers after judges effectively revoked the blanket immunity from litigation that the Revenue had previously enjoyed.

Lawyers said the decision, in the case of Neil Martin, a Scottish builder who claims to have lost £500,000 through Revenue errors, represented a "major shift" in UK law.

Mr Martin, who was almost bankrupted by a series of errors, was told by the High Court last year that he could not claim damages because the taxman did not owe a duty of care to victims of mistakes.

But yesterday three appeal judges ruled that one of the errors affecting Mr Martin went "beyond an administrative mistake made in the ordinary course of processing". It was therefore "fair, just and reasonable" that he should be entitled to compensation, they said.

His legal team described the judgment as a "landmark victory" for all taxpayers who suffer negligence in their dealings with the Revenue.

"Up until now, no matter how negligent and incompetent the Revenue or its employees were, it appeared to be immune from claims. This case establishes for the first time that compensation is available in the courts in accordance with the usual legal principles," they said.

Mr Martin's barrister, Nick Bowen, of Doughty Street Chambers, said: “This is the first time that a Court has accepted that the Revenue can be sued in negligence, the fact that the Court has decided to impose a duty of care, however limited on the facts, is a very significant extension of the law.”

Keith Hobson, a tax adviser at law firm Halliwells, said: "Clients will be monitoring this case very closely in relation to their own disputes with the Revenue and, in future, other similar actions may be brought."

A jubilant Mr Martin declared his case was "a victory for the small man against the might of the most powerful organisation of the state, the Inland Revenue".

But although Mr Martin was the victim of a series of errors, the judges made a distinction between what they called a "mere omission" and something that went "beyond an administrative mistake."

In his case this involved a Revenue employee filling in a form that should have been completed by Mr Martin. It was this specific incident, rather than general delays and administrative errors, that entitled Mr Martin to compensation.

Tax advisers will now have to advise clients hoping to make a claim whether the error that affected them was serious enough to pass "beyond an administrative mistake"

Rather unhelpfully, tax advisers said, the only existing example is that of Mr Martin, whose case turned on a specific and unusual series of events.

Despite Mr Martin's insistence that his victory represented a "victory for taxpayers", David Halpern, QC, of the Chancery Bar Association, is sceptical that others will enjoy the same success.

"The judges have picked on the specific error of the employee filling in Mr Martin's form so I'm not sure this case will be that much use to other people," Mr Halpern said.

In a statement, the Revenue said it “acknowledges that mistakes were made in the handling of Mr Martin’s application but is confident that its processes were improved.”

It declined to comment on whether yesterday’s case likely to lead to a spate of copycat claims.

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