The taxman giveth - and he taketh away

Up TO 3.5 million people are set to receive a tax refund from next week, but as many as 1.6m face a bill for underpaid tax, according to HM Revenue and Customs (HMRC).

Those who are due a rebate will get an average windfall of £379, while the typical shortfall for those who have not paid enough is £537, under Pay As You Earn (PAYE) adjustments for the tax year 2011-12.

The tax bills and refunds, which are a normal part of the PAYE process, are being handed out two months earlier than last year, meaning people will get their money back more quickly as well as knowing exactly what they owe, HMRC said.

Under PAYE, a tax code is allocated to taxpayers to ensure the right amount of tax is deducted at source, but people can end up paying too much or too little when their circumstances change and HMRC is not told.