APPROXIMATELY £5.2bn in taxes was written off by HM Revenue & Customs last year, according to a report published by the National Audit Office.
The figure was down on the £5.5bn of write-offs and remittances in 2010/11, but made up more than 1% of the total £474.2bn tax collected.
The Revenue's accounts showed it had overpaid some £2bn-£2.5bn in tax credits and underpaid about £290m as a result of fraud and error. As such, a target of reducing the level of fraud and error to 5% of tax credit entitlements was not met.
Despite meeting a target for reducing tax credit debts from £4.7bn to £4bn by March this year, the report also found there had been a "large increase" in the amount of tax which HMRC has opted not to pursue over the last two years, including £756m worth of income tax in 2011/12 alone.
In a scathing assessment, Margaret Hodge, chair of the committee of public accounts, said: "The sheer scale of waste and mismanagement at HMRC never ceases to shock me.
"Sadly, it is no surprise that the NAO has found substantial problems with the HMRC's accounts. This year has seen a litany of tax errors and scandals come to light with mistakes made at the most senior level from the permanent secretary for tax downwards."
The taxman did claim some victories, however. Overall revenue grew by £4.5bn – almost 1% – in 2011/12, while the VAT take went up by £9.3bn, mainly due to successive hikes in the purchase tax from 15% to 20% between 2010 and 2012.
The NAO also noted improvements to PAYE, with the target of processing 6.7m cases relating to the previous two years met.
Amyas Morse, head of the NAO, said HMRC had to learn several lessons as a result of the report.
He said: "There are broad lessons here which reinforce the messages in our recent value for money work on tax administration. The department should seek to apply those lessons across the full range of its activities.
"The department should get a better understanding of the costs and benefits of its interventions – such as debt campaigns and initiatives to drive down levels of error and fraud in tax credits.
"Secondly, it should prioritise and target its activities on the basis of a better understanding of risks, such as risk profiling of taxpayers.
"Finally, before implementing significant structural changes, the department needs to be clear about what its future operating model will be. It needs to understand how its business will change following the introduction of real-time information and universal credit."
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