Two million to receive £500 bills from the taxman

But three and a half million are due a refund

HMRC has announced that more than five million people paid the wrong amount of tax in the 2012/13 financial year.

Three and a half million will enjoy a tax refund, but two million will have to pay an average of between £400 and £500 as they’ve underpaid.

The taxman says 85% of taxpayers paid the correct amount of tax via the Pay As You Earn (PAYE) system.

Letters will be sent out to affected taxpayers between now and October, with the first batch going out over the next few days.

[Trim your tax bill in one week]

What happens if you've underpaid

If you’ve underpaid by less than £3,000, the ‘reconciliation’ (as HMRC calls it) will be collected over the course of the 2014/15 tax year, which begins next April, via your pay.

If you’ve underpaid by more than £3,000, you can pay some or all of the bill now. If you pay a part payment to bring the amount you owe down to less than £3,000, it can then be collected via your pay in 2014/15.

If you can’t afford to pay the sum you owe, you should contact HMRC and it can potentially allow you to spread the cost over a longer period.

What happens if you've overpaid

If you've overpaid, you'll be sent a cheque in the post. But you can make a claim now if you think you're owed money. Check your tax code and see if you can spot where the overpayment has occured.

[What your tax code means]

Will tax errors soon be a thing of the past?

This latest string of incorrect tax bills will once again raise questions about the reliability of HMRC’s systems.

It’s launching a new PAYE system in October, which it claims will eliminate these errors in future years.

And watch out for tax refund scams that will no doubt be doing the rounds off the back of this news.

[Enjoy tax-free savings with an ISA]