At the moment, if HMRC makes mistakes with a taxpayer’s tax affairs, the taxpayer can claim back taxes (with interest added) for the past six years. But now HMRC wants to change these rules so that they are only liable for four years.

HMRC holds a wealth of data about taxpayers on its files, but this is not always married together; and when it is, very often a repayment is shown to be due. This is particularly the case with regard to pensioners.

John Andrews, chairman of the Low Incomes Tax Reform Group (LITRG), says, ‘Low-income taxpayers can pay too much tax for a variety of reasons, including incorrect PAYE codes; additional personal allowances not given, such as age allowance, blind person’s allowance or married couple’s allowance; and having 20 per cent tax deducted at source on savings interest, when no tax or ten per cent tax is actually due.’

Frequent mistakes are made by the HMRC when dealing with pensioners. For example, LITRG has come across numerous taxpayers in their 80s who have never had the benefit of age allowances and have therefore been overpaying tax for 15 years or more.

A year ago, HMRC estimated that there were 180,000 pensioners who had overpaid tax, yet, according to LITRG, they have not even started to find out who those people are – let alone make any repayments.
Andrews adds, ‘If you have been careless with your tax affairs, HMRC can go after you for six years of back tax, but when they are careless with your affairs, they only want you to have the right to four years. Where is the fairness?’

This change of law in tucked away in the Finance Bill 2008 and will be debated in the next few weeks.

‘Until such time as HMRC puts its own house in order by matching all data in their possession and contacting taxpayers who are likely to have overpaid, we are strongly against a reduction in the time limit for claims. And so should be every MP sitting on the Finance Bill Standing Committee,’ concludes Andrews.