The cat is out of the bag. HMRC has admitted 3.5 million of us are owed money from tax overpays for the 2012-13 tax year, anywhere between £350 and £500 each. To balance the news, two million more of us owe between £400 and £500 because we’ve underpaid on our PAYE.

Does HMRC check their records? Yes, they do. HMRC makes sure the tax and national insurance deducted by employers matches the information on its records. It’s called the end of year reconciliation process and it kicked off recently. The process should be done and dusted by October, by which point there will probably be even more mistakes to rectify.

Why’s it happening?

If you either owe money or are owed it, it’s extremely annoying. These people are paid to get it right and there’s nothing worse than someone mucking about with your finances, especially when you’re strapped for cash. But there’s a good explanation. Apparently more than 40 million Brits pay tax via the PAYE system and around 85% of the time it works out fine. But because a proportion of us change jobs, lose jobs, take on more than one job, go self employed and so on every year, there will always be a few who end up paying more or less than they need to. Which seems fair enough.

On the other hand a total of 5.5 million of us pay the wrong amount of tax each year, just under 14%. That’s an awful lot of people paying too much or too little. There are even rumbles in the media that it represents a ‘blunder’.

What happens next?

If you’ve paid too much you should get a payable order – a kind of cheque – which could arrive as early as this month. If you’ve underpaid you’re unlikely to get a bill, which is good news. Your tax code will change next year to reflect the underpayment and you’ll pay it off during the 2014-15 tax year instead. HMRC will be sending out letters containing all the information you need. And they’ve also said they’re prepared to be sympathetic if you’re finding it hard to make ends meet, offering those in genuine dire straits the chance to pay it off over 2-3 years instead.