The taxman taketh, now he giveth back

The words “tax” and “good news” don’t tend to mingle in the same sentence. But for millions of taxpayers this year, they will. That’s because HM Revenue and Customs has admitted that it made mistakes with its calculations, leaving up to 3.5 million Britons set to enjoy tax rebates. The average payment will be £340, but some could see thousands of pounds returned.

For those pay-outs, you don’t have to do anything: HMRC is sending out letters, swiftly followed by cheques, automatically. The only exception is if you’ve moved house without informing the Revenue, in which case do so now.

Millions of other Britons may be on the wrong tax code and paying too much — or too little — tax as a result.

Students, for example, may be automatically taxed on earnings and on interest from savings, but if not earning above the £7,475 personal allowance, any paid tax should be returned.

It’s worth combing your details to check you’re paying the correct tax. If your code is wrong - even if you’re not paying enough tax - far better to find out soon, and pay it off gradually, than face a huge bill just before retirement.

You’ll find your code on your pay slip, P60 or P45. With that in hand, your next step is to head to HMRC’s information on www.hmrc.gov.uk/incometax/codes-basics.htm to cross-check your numbers and work out if they’re correct. There is also a useful tax-code calculator at http://tinyurl.com/67f48dk.

If you discover a mistake, contact your local HMRC office and ask for a repayment claim form P50 (on wages) or form R40 (on savings). If you’ve overpaid tax, you can claim up to five years and ten months from the end of the tax year in question.

By contrast, if you’ve underpaid and owe the taxman less than £2,000, it will normally ask for the money back over the course of one year through your tax code. Any more than that, and HMRC will organise a repayment arrangement with you. If you can’t afford to pay the tax back, HMRC may allow you to spread the payments over two or three years.