More than 120 jobs are in jeopardy at a firm after the Government scuppered its biggest contract.

H Beesley, of Leicester, lost more than £1m after the Government stopped it from completing a contract to supply engineering parts to Iran.

Now, the company is set to go into administration after ministers refused to give it time pay a £900,000 tax bill it ran up while trying to find other buyers for the goods.

The wrangle began three years ago after the firm won a contract to supply Parto Manufacturing with air guide tubes for gas-powered power plants being built in Iran by German engineering group Siemens.

Government officials told the company there was a possibility the products could be used to help make nuclear weapons.

Originally, the firm's managers were told by the officials they did not need an export licence for the parts. It sent five consignments worth £1.2m.

Then, in October 2008, a shipment was stopped by customs officers at Heathrow Airport.

The company was told there had been a change in stance on exporting to Iran and it could not continue the contract.

Managing director Richard Clarke said: "This is a bit tenuous and a bit of a flimsy excuse.

"The galling thing is that the customer in Iran has now purchased the parts elsewhere in Europe.

"One of the things we had been told was that the decision was based on a European ruling.

"I think originally they got it wrong about the equipment and they didn't want to back down and reverse their decision."

Mr Clarke said he intended to put the business into administration either today or later this week to protect it from a potential winding up petition from HM Revenue & Customs, which if granted would see the business broken up and sold. He expects at least 30 jobs to be axed by administrators.

"We are looking at a way to buy this company back from the administrators and to carry on trading," said Mr Clarke. "However, by doing this we open up the possibility of the business being bought by someone else. This was all unnecessary. We are being pushed into it."

The company, in Freemen's Common, Leicester, has not paid most of its tax since losing the Iranian contract, a practice widely followed by businesses battling to stay afloat after a financial crisis. But the company was unable to sell the parts to other business because they were designed for a specific project.

The £1.2m it lost – about a fifth of last year's turnover – is made up of lost sales of parts and money spent on equipment and raw material for other orders.

"We have been given a lot of false hope by all the various Government agencies," said Mr Clarke.

A spokeswoman for the Department for Business, Innovation and Skills said: "When H Beesley approached us in February 2007 about an export licence one was not then needed, but they were told this could change.

"By October 2008, our attitude to exports to Iran had changed. We never said its products could be used in a nuclear weapon. The point is when you are building a nuclear power plant you need a large power supply that these power turbines could provide.

"We have worked with H Beesley to see which of the support measures on offer from the Government would have suited its needs. None of the support suited them."

Rutland and Melton MP Alan Duncan, the former Shadow Business Secretary, who has been assisting the company, criticised the Government.

"Every single part of this is wrong," he said. "They were in the middle of a contract for which they had permission. That permission was then withdrawn for no good reason.

"The Government has forced this company in administration."