By Paul Lewis
BBC Radio 4's Money Box
In 2006/07 425,000 taxpayers overpaid (source HMRC)
MPs have approved new rules which will limit refunds when the Revenue has made a mistake.
At the moment taxpayers can reclaim overpaid tax for up to six tax years. But when the new rules start in 2010 that will be cut to four years.
The change could slash hundreds of pounds off refunds where mistakes have not been noticed for several years.
But HM Revenue & Customs says the proportion of claims going back four to six years is small.
The new rules would still allow the Revenue to reclaim underpaid tax for up to six years if the taxpayer had been careless. Mervyn Kohler of Help the Aged told Radio 4's Money Box programme that was unfair.
"The Revenue estimates that amongst older people alone probably about 200,000 are overpaying income tax.
"It does not seem right or proper that the individual has to get their claim sorted within four years but the Revenue can come back to you up to a period of six years if you owe them money."
In a statement the Revenue confirmed that it could go back six years "if the taxpayer has not taken reasonable care" but that otherwise it too would be restricted to four years. It says that the changes are designed to modernise and align tax penalties.
Anita Monteith, Tax Manager at the Institute of Chartered Accountants in England and Wales, told Money Box that tax on pensions was often wrong.
"It is not uncommon for pensioners to have a state pension and two or three occupational pensions. The PAYE system can't cope with multiple sources of income. It is being overburdened and people end up overpaying tax as a result."
The Revenue admits it made more than six million mistakes in PAYE in 2006/07 As a result 425,000 taxpayers paid £111 million too much tax with almost a third overpaying by £500 or more.
The charity Tax Help for Older People said 44% of the claims it dealt with went back six years and the average claim for those was £1,963. Under the new rules the average claim would be slashed by £654.
HM Revenue & Customs repaid £1.8 billion in overpaid tax in 2005/06. A spokesman said "The proportion of claims going back four to six years is likely to be very small."
Many pensioners and children also pay too much tax on their savings interest. It is deducted automatically at 20% regardless of whether the saver should pay tax or not. Anita Monteith says they should register to have it paid gross and claim back for past years.
"It is very important that people who do not have to pay tax - older people and children especially - go along and get the form R85 so tax is not deducted.
"Claiming it back is relatively simple. Download form R40 from the Revenue website and get it in before 2010 when the changes start!"
BBC Radio 4's Money Box was broadcast on Saturday, 14 June 2008 at 1204 BST.