The regulations currently allow claimants up to five years and 10 months after the end of the year to which the claim relates. The time limit will reduce to four years under a new bill due to take effect on April 1, 2010.
Pressure groups are claiming HMRC are operating double standards in reducing claimants time to recover money while preserving the right to go back almost six years to claim back underpaid tax.
The National Audit Office has estimated that £157m is overpaid in tax every year and one in five tax payers have incorrect codes.
Reasons for overpayments are multiple and can include issues such as incorrect tax codes, failure to reclaim on pension contributions or benefits in kind and savings income.
Standard Life has calculated that 250,000 higher rate taxpayers in group personal and group stakeholder pensions are missing out on tax relief equivalent to 20% of their pension contributions.
Research by the charity Tax Help for Older People found 44% of the claims it investigated went back over six years.
The HMRC has stated that four years is sufficient time to make a claim. However, it said it would continue to except cases outside the limit when an error on the HMRCs part has occurred or where the taxpayer has given notice of intention to claim before the time limit expires or where failure to make the claim was beyond the customer’s control.