HMRC want to keep your repayment

At the moment, if HM Revenue & Customs (HMRC) make mistakes with a taxpayer's tax affairs then the taxpayer can claim back taxes (with interest added) for the last 6 years.

But now HMRC want to change these rules so that they are only liable for 4 years.

HMRC holds a wealth of data about taxpayers on its files, but this is not always married together.

When it is married together very often a repayment is shown to be due. This is particularly true with the pensioner population.

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 couples allowance; or through having 20% tax deducted at source on savings interest, when no tax or 10% tax is actually due.

LITRG asked the charity TaxHelp for Older People to undertake a sample of recent tax reclaims for low income pensioners. They analysed 80 of their recent refund claims. This revealed the following:

44% are claims for refunds going back 6 years
All these claims are where HMRC failed to advise the pensioner that tax was owing to them
The average claim is £1,963 for the 6 year period (an average of £327 per annum)
The highest claim was for £5,200
The lowestwas for £37
Most claims were in the region of £1,000 to £2,000

These are revealing statistics and show how inequitable it would be for HMRC to remove two years of these repayments.

HMRC make frequent mistakes 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 that had overpaid tax, yet to our knowledge they have not even started to find out who these people are, let alone make them repayments.

John Andrews, Chairman of LITRG said: "If you have been careless with your tax affairs, HMRC can go after you for 6 years of back tax, but when they are careless with your affairs, they only want you to have the right to 4 years. Where is the fairness?"

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

John Andrews continued: "Until such time as HMRC puts its own house in order by matching all data in its 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."