The Government saw a 4.4% decline in tax revenues over the latest financial year as a result of the pandemic, according to official figures.
The National Audit Office (NAO) revealed that HM Revenue and Customs (HMRC) saw a significant reduction as measures were introduced to ease the burden on businesses during the pandemic, including business rates and VAT holidays.
HMRC reported total tax revenues of £608.8 billion in the 2020-21 financial year, representing a £27.9 billion decrease in tax from the previous year.
The new data showed that the revenues primarily consisted of income tax, national insurance contributions and VAT.
HMRC also estimated that the income tax and national insurance contributions due on the Covid-19 scheme support payments it made during the year contributed over £10 billion in tax.
HMRC has also estimated that there has been £5.8 billion worth of error and fraud in payments through the Covid-19 support schemes, with £5.3 billion of this relating to furlough payments.
It also estimated that error and fraud resulted in roughly £880 million in overpayments of tax credits from 490,000 although this reflected a significant reduction from previous years.
The NAO said that HMRC now needs to act further on tax fraud and compliance as the pressure from the pandemic on the office has eased slightly.
Gareth Davies, head of the NAO, said: “The Covid-19 pandemic has significantly reduced tax revenues and made it more difficult for HMRC to take enforcement action.
“Now that the initial impact of the pandemic has eased, normal tax compliance levels should be restored.
“HMRC also needs to recover money paid out through fraudulent claims made under the Covid-19 support schemes.”