A report by the National Audit Office (NAO) has called into question the way five large tax settlements were handled and slammed poor internal communications within Her Majesty's Revenue and Customs (HMRC).

Vodafone happy as National Audit Office says its 1.25bn pound tax settlement was reasonable
Vodafone happy as National Audit Office says its £1.25bn tax settlement was \"reasonable\"

"Our concerns over the processes by which the settlements were reached have been confirmed," said an official statement from the NAO.

"It was not appropriate to set up governance arrangements specific to certain cases or to fail to apply processes correctly. Poor communication with staff also undermined confidence in the settlements."

However, the report concluded that five tax settlements paid by companies who owed billions in back taxes were reasonable and the overall outcome for the Exchequer was good.

"All five settlements were reasonable, and at least one may have been better than reasonable," the NAO report said.

"Moreover, in settling them, the Department successfully resolved multiple, long-outstanding tax issues."

The NAO acknowledged the concerns of whistle-blowers who highlighted the five cases but said their actions were often based on a partial understanding of the settlement because the details were confidential.

"In this context, the concerns made sense. The conclusions on reasonableness depend upon understanding of the settlement as a resolution of several issues, as well as the detail of the individual issues," the report found.

The NAO was asked in December 2011 to report to the UK House of Commons Public Accounts Committee on the reasonableness of settlements agreed by HMRC to resolve tax disputes.

Vodafone, which was one of the companies involved in the issue of tax settlements, said it was pleased with the report's findings.

"For more than a year, Vodafone has been falsely accused of improper conduct. As we have consistently stated, those attacks were unwarranted and unjust," said Vodafone Group Chief Financial Officer Andy Halford.

"We acted with the utmost propriety throughout the HMRC settlement process, and the National Audit Office has now concluded that the outcome was good for the UK taxpayer. We welcome this vindication."

Halford said Vodafone was a significant contributor to the UK as a whole as the country's biggest dividend payer.

"We returned £6.7bn in cash to our shareholders this year, who include virtually every major investment fund relied upon by millions of UK pensioners and savers."

Vodafone paid £1.25bn to settle its outstanding tax bill in 2010.

The NAO carried out its examination with the help of former High Court tax judge Sir Andrew Park.