MILLIONS of taxpayers will see their right to claim back overpayments of tax cut by a third under a bill going through parliament.

Finance experts are urging taxpayers to act now to claim back millions of pounds of overpaid tax before the time limit for backdating claims is cut from almost six years to four.

Pressure groups have accused the Treasury of double standards for restricting the ability to claim back overpaid tax while leaving limits on the taxman’s powers to go back in time unchanged.

Taxpayers can now claim back overpaid income and capital gains tax (CGT) for five years and 10 months after the end of the year to which the claim relates. The bill will cut that back to four years, while reserving the Revenue’s right to go back six years when claiming money back off the public.

“It is disgraceful that the Revenue can live by a different set of rules to the ordinary taxpayer,” said Mark Wallace at the Taxpayers’ Alliance. “Taxpayers are already feeling the pinch and if they want to reduce the clawback time, they should do it for both the Revenue and the public.”

The changes, described by the government as designed to “modernise” time limits, were buried deep in the small print of the budget and are set to take effect from April 1, 2010.

A report from the National Audit Office last year found that one in five people have an incorrect tax code. It also found that around 1m people are paying the wrong amount of tax, with £157m overpaid every year. The average overpayment is £290 but some errors lead to far higher overpayments, it said.

Mike Warburton at Grant Thornton, the accountant, said: “This change will mean all sorts of people, rich and poor, young and old, will lose out when it comes to claiming back tax they have already paid, even if it was paid by accident. It makes it more important than ever to make sure your tax code is correct and claim all the reliefs to which you are entitled.”

To get a tax rebate you have to contact your local tax office and either have your tax code changed or fill in a tax return.

Common reasons for paying too much tax are having an incorrect tax code, failing to claim higher-rate tax relief on pension contributions and forgetting to claim back tax on pension or cash on deposit income if you are on a low income. You may also be paying too much tax if you have a P11D for a benefit in kind, such as a company car, that you are no longer using.

There are many other situations where overpaid tax can be lost. Last year Angus Monro, former chief executive of Mata-lan, lost a court battle to recover £860,000 he had overpaid in CGT because he put in his claim outside the six-year limit.

Hundreds of thousands of higher-rate taxpayers - those earning over £41,435 - who are not receiving the tax relief on their pension contributions to which they are entitled will be worse off after the changes.

Standard Life calculates that 250,000 higher-rate taxpayers in group personal and group stakeholder pensions are missing out on thousands of pounds’ worth of tax relief equivalent to 20% of their pension contributions because they wrongly believe their pension provider or employer claims it back for them.

Higher-rate taxpayers are also entitled to higher-rate relief on gift-aid donations to charities, as tax relief is only granted automatically at the basic rate.

It is not just high earners who will miss out. Tax Help for Older People, a charity, recently carried out research on 80 of its most recent refund claims. It found 44% of claims went back six years and that the average claim was for £327 a year.

John Andrews of the Low Incomes Tax Reform Group said: “We have come across numerous taxpayers in their eighties who have never had the benefit of age allowances and have therefore been overpaying tax for 15 years or more.

“A year ago the Revenue estimated that there were 180,000 pensioners who had overpaid tax, yet to our knowledge they have not even started to find out who these people are, let alone make them repayments.”

The Revenue said: “Four years is sufficient time for customers to make a claim in normal circumstances. However, we will continue to accept claims for refunds after this time limit where an error or mistake on our part has led to the claim being made outside the time allowed, where a taxpayer has given clear notice of his or her intention to claim before the time limit expires or where the reason for the delay in making the claim was clearly beyond the customer’s control.”

There are still two years to go, but the changes be a wake-up call to make sure you are paying the right amount of tax.

WHAT IS AT STAKE?

What is happening? Currently taxpayers can claim overpaid income and capital gains tax for five years and 10 months after the end of the year to which the claim relates. That will be cut to four years, while the Revenue reserves the right to go back six years.

Who could be affected? The one in five of us who have incorrect tax codes and haven’t reclaimed the money. Also, higher-rate taxpayers contributing to group personal pensions through their employers. Basic-rate relief is claimed automatically, but you must claim the higher-rate yourself and many do not.

Retired people on low incomes with pension annuities or savings income are also likely to lose out.

What could I be owed? Someone earning £60,000 and paying 10% of salary into their pension can claim back top-rate relief of £1,200 this year.

A backdated claim today brings a £6,480 rebate for six years - a similar claim after April 2010 would give just £4,320.

What should I do? Check your tax code at www.hmrc.gov.uk/incometax/ understand-p2.htm (not just for pensioners).

Higher-rate taxpayers in a group personal pension should ensure they are claiming top-rate relief through a self-assessment form. For more information go to www.hmrc.gov.uk or call the self assessment helpline 0845 900 0444.