A third of self-assessment taxpayers did not pay the right amount of tax in 2016/17, resulting in an £8 billion loss to the Treasury, research claims.
A paper published by the Social Market Foundation (SMF) found that of the 10 million people a year who filed self-assessment by 31 January 2018, one in three underpaid.
The research also claimed that the majority of the unpaid £8bn is owed by only 2% of self-assessment taxpayers.
According to the most recent tax gap figures from HMRC, 5.7% of all tax due in 2016/17 was not collected, with the biggest factor being a "failure to take reasonable care".
HMRC said it is working with small businesses to help them get their tax right, and that the rollout of Making Tax Digital will also help to reduce errors.
However, the SMF said an increase in targeted audits of taxpayers would be the most effective way to tackle the issue, bringing in an estimated £10,000 to £15,000 per audit.
The thinktank said targeted audits by HMRC have fallen steadily for several years.
Dr Arun Advani, author of the paper and assistant professor at the University of Warwick, said:
"More money from the Treasury to do these valuable audits would reap significant rewards, paying for itself and bringing in additional funds.
"Cutting auditors is the hallmark of short-term thinking. It reduces current costs, while money from past audits keeps rolling in - but that is not a sustainable strategy."
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