Like most other government departments, HM Revenue and Customs (HMRC) is to lose some of its budget as a result of the spending review.
The Chancellor introduced cuts of 15 per cent in real terms in the tax authority's spending.
HMRC has been briefed to make the savings through a reduction in admin costs and a more effective targeting of customer services.
Processes that cause the greatest number of errors, such as VAT registrations, are to be redesigned.
The government said that the backlog of PAYE under- or overpayment cases should be cleared by 2012. HMRC will also be conducting the next stage of the consultation on improving the PAYE system, examining how best to manage a real time information process. The pirpose is to ease the administrative burden of tax management on employers.
Despite the cuts, HMRC has been granted an extra £900 million of funds over the next four years to tackle the issue of tax avoidance. The plan is that the additional resources will enable HMRC to recover some £7 billion a year in underpaid or unpaid tax by 2014/15.