The Inland Revenue must do more to tackle tax fraud and non-payment, MPs have warned.

In a report published on Tuesday, the public accounts committee said the tax authority should focus its work on assessing the scale of "tax gap" in order to decide how best to tackle the problem.

It said more must also be done to root and fraud and called for a renewed push to warn the public of the risks.

"The low number of fraud investigations and prosecutions is not commensurate with the potential sums at stake in lost revenue," said the committee's report.

The committee went on to warn that the overall scale of work has not "kept pace" with the expansion in the revenue's business.

"Investigation work on tax fraud appears to have reduced as work on tax credit fraud has increased, despite additional resources being provided. The financial returns on investigations suggest that it would be cost-effective to do many more," noted the report.

The Inland Revenue first set out its tax compliance strategy in the 1980s. Since then the scope of the body's work has ballooned and the committee notes it now needs an "explicit strategy for preventing, detecting, investigating and deterring fraud".

The MPs said more also needs to be done to pursue the new offence of evading income tax. The committee says a new approach would be "particularly relevant in tackling fraud in the shadow economy".

"In increasing the level of prosecutions the revenue should extend the coverage across all taxpayer groups, to include all sizes of business and lower value cases, so that deterrence is maintained across the entire taxpayer base," said the report.

Yet the MPs admit that there is "a difficult balance to be struck" in offering those in the shadow economy the incentive to regularise their tax affairs while not giving them an unfair advantage over those who comply fully.

"While it remains important to punish serious abuse, the revenue should also examine opportunities to secure higher levels of voluntary compliance and payment of tax due, for example by improving arrangements for payment by instalment and interest on arrears of tax," conclude the MPs.

Committee chairman Edward Leigh said: "Indeed, with only 400 serious fraud investigations a year against 30 million customers, those contemplating tax fraud may well calculate that the chance of being caught is remote."

"I urge the revenue to step up considerably their fraud investigation work and to pilot national publicity campaigns highlighting the unacceptability of fraud and the consequences of getting caught, along the lines of those undertaken by the Department for Work and Pensions and Customs and Excise."

The committee also warned that the Treasury faces "a growing threat" from fraud involving offshore accounts and structures.

It called on the Inland Revenue to work closely with the banking and credit card industry to ensure reporting requirements of recent legislation are used to full effect.

If difficulties remain they will need other ways to obtain the information they require, such as a statutory duty for financial institutions who provide offshore accounts to disclose the identify of account holders.

The cross-party committee also warned that the revenue has not followed the examples departments such as the Department for Work and Pensions and Customs and Excise which have led high profile campaigns warning of the consequences of getting caught for benefit or tax fraud.