Pensioners, non working spouses and higher rate taxpayers are all likely to be among the individuals to be hit by the Revenue’s move to shorten the time limit for tax refunds from six years to four.

Many elderly people could be left unable to reclaim hundreds of pounds of tax deducted at source from savings income and annuities, while higher rate taxpayers who are members of  company pension schemes, may be unable to claim the extra 20 per cent tax relief due on their pension contributions.

Cuurrently individuals can reclaim overpaid tax going back six years to the 2002-03 tax year. But as part of the Finance Bill currently going through Parliament, this time limit will be reduced to four years from 2010.

Many older people and those on PAYE often have their tax affairs reviewed only every few years and therefore may discover too late that they are eligible to  make a reclaim for overpaid tax or claim a tax relief. 

Retired and non-working spouses often find they have paid too much tax because of the banks’  requirement to deduct 20 per cent income tax at source on  savings interest. If your total annual income is less than your tax free personal allowance, you can register to receive interest gross by completing form R85.

But this isn’t possible if your income exceeds your personal allowance, in which case the bank or building society will deduct 20 per cent income tax automatically on all your savings interest, even if your circumstances change during the tax year.

This means that savers entitled to the 10 per cent tax band, which has been retained for certain low income groups, will have to make a reclaim for overpaid tax at a later date.

Higher rate taxpayers contributing to company pensions often assume that the higher rate tax relief which is payable on pension contributions is recouped by their pension scheme and added to their pension fund automatically. But this isn’t the case.

All pension contributions (whether to a company scheme or to any form of personal pension) are paid net of 20 per cent income tax.   Higher rate taxpayers need to reclaim the remaining 20 per cent tax relief they are entitled to via their self assessment tax returns.

Any overpaid tax will then be refunded, either by raising their tax- free allowance through PAYE (if employed), or used to reduce your tax bill, if you are self employed.

Employees who are higher rate taxpayers and who opt to pay their company pension contributions via salary sacrfice, don’t have to worry about this. Their contributions are paid gross, directly from their employer to the pension provider, so their pension funds benefit from higher rate tax relief automatically.

STOP PRESS: Self employed individuals who owe tax need to get their tax bills paid today if they want to avoid swingeing penalties and fines. The deadline foor second payments on account for the  2007-08 tax year is midnight on Thursday 31 July.