Taxpayers are being urged to check how much they are forking out after it was revealed last week that almost 6m people could be paying the wrong amount, writes Ali Hussain.

A report by the National Audit Office said taxpayers may have overpaid by about £500m because of deficiencies in the pay-as-you-earn (PAYE) system, where tax is deducted from your pay packet.

Mike Warburton of Grant Thornton, an adviser, thinks the system has become too complex, leaving it open to errors.

He said: “For many people, especially those who have moved from basic to higher-rate tax, PAYE is only ever going to be an estimation.”

He advises people to check their tax code carefully. It should be sent to you once a year along with a booklet explaining the calculations.

Warburton said: “Many people get a PAYE code and put it in the bin without realising the significance of it.”

Your code is worked out by taking what you earn and deducting the personal allowance — the amount of income on which you pay no tax — £5,035 this year for most people. But there is a different allowance for the over65s, so the first thing to check is that you have been allocated the right allowances.

Your tax code is normally made up of one letter and several numbers, such as 117L. The letter shows the personal allowance that you have been allocated — L means you have been allocated the basic personal allowance, while P means you get the special allowance for people aged 65 to 74.

You can multiply the number in your tax code by 10 to work out the total amount of income you can earn in a year before paying tax.

But that’s not the end of the matter. Your code will be affected by things such as any benefits you get from your firm. If you have a company car and the benefit is taxable, for example, this will affect your code. You should therefore check what the Revenue is assuming about you.

People who have experienced changes to their working lives are most likely to be paying the wrong amount. You could, for example, have been put in an emergency tax bracket if you failed to hand in your P45 when moving jobs.

Warburton said: “If you change jobs, or work abroad for a period, or had a company car but no longer have one — anything like that — you need to check if your code reflects your current circumstances.

“If you get a tax code that just says BR — basic rate — you may be having more tax collected than you owe because you haven’t been allocated any personal allowances.”

You can find a guide to whether you have paid too much, and to making sense of your tax code at hmrc.gov.uk/ pensioners/haveyoupaid2.htm (not just for pensioners).

Alternatively, you can ring your local Revenue & Customs helpdesk for an explanation.

ADVICE ON CHECKING YOUR CODE

- You will receive a coding notice once a year, telling you how much tax you are paying. If you don’t get one, contact Revenue & Customs and tell it to send you one.

- The notice will come with a booklet explaining how the code has been worked out, including what personal allowances you have been allocated. You can check on the Revenue & Customs website (hmrc.gov.uk) about the allowances you are entitled to.

- Go through the notice to find out your allowances and income. If you feel they do not look correct, contact your revenue district.

- Check your P60 and make sure you have paid the correct amount for that year. Use the Revenue & Customs tax calculator on its website to help you work this out.