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Following review by a former tax judge, the NAO concludes that all five settlements were reasonable but there is concern over the settlement processes.

A major HMRC programme to improve the way it tackles evasion delivered £4.32 billion of additional tax yield, reduced staff numbers and improved compliance work. However the Department is not yet exploiting the full potential of its new systems.

HMRC’s renewed strategy for dealing with alcohol duty fraud is a significant improvement on the previous strategy. However, the Department needs a reliable estimate of the tax gaps for beer and wine; and to tackle successfully the illicit diversion of duty-unpaid alcohol back into the UK market.

HM Revenue and Customs will have to make sure its staff have the right skills if the Department is to succeed in cutting its running costs by 25 per cent by 2014-2015 and bringing in each year an extra £7 billion of tax revenue.

The programme to increase online filing of tax returns has made significant progress, but HMRC needs a better understanding of the benefits and costs to customers and how its online filing costs compare to those for paper returns.

HMRC faces a significant challenge in securing a £1.6 billion reduction in running costs over the next four years, at the same time as increasing tax revenues, improving customer service and achieving reductions in welfare payments.

The NAO has published its report on the 2010-11 accounts of HM Revenue and Customs.

HMRC’s civil investigations directorates, which examine serious cases of suspected tax evasion, have generated increasing returns from their work, while reducing resources. However, there is scope for them to achieve more.