NHS Highland was condemned for “faulty advice and slow decision-making” as it was confirmed victims of bullying will not have to pay tax on settlement pay-outs.
It emerged last year that compensation payments to staff who were bullied or harassed were made through the payroll, and subject to tax and national insurance.
It meant amounts received by victims were as much as halved, with one former NHS worker saying his expected £25,000 pay-out was to be cut to £13,000.
The health board said it was advised the payments had to be taxed at source, before later seeking a review.
Now HM Customs and Revenue (HMRC) said payments made in relation to harm and healing are not taxable.
The health board, which said sorry recently for not anticipating the problem, has now apologised again.
The payments were issued as part of the “healing process“, set up following the independent review by John Sturrock QC on allegations of bullying and harassment within the health authority.
HMRC’s ruling applies to the vast majority of payments made so far.
NHS Highland chief executive Pam Dudek said: “We sincerely apologise for upset and harm caused by the initial confusion on what the tax situation would be for this unique service.
“While we sought in good faith to make payments as quickly as possible once recommendations had been approved, in retrospect, delaying payment while we sought clarification from HMRC might have been advisable.”
MSPs Edward Mountain and David Stewart, who have supported victims, said it was a victory for common sense.
Mr Mountain said: “The faulty advice and slow decision making on taxing compensation should have been spotted when the healing process started on May 26 2020.
“I therefore welcome HMRC’s confirmation that NHS Highland made a mistake by subjecting compensation payments to tax treatment.”
He said the “tax fiasco” could have been avoided had NHS Highland raised the issue with HMRC earlier.
Mr Mountain added: “This would have spared bullying victims from a lot of additional pain, hurt and financial worries.”
Mr Stewart said: “This will come as a great relief to those being awarded money for the bullying and harassment they’ve endured.”