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By Rachel Jones
Know Your Money Editor

Up to three million people in Britain are entitled to a share of a total of £250 million of tax that should not have been paid, Claire Merrils, from HM Revenue and Customs, recently told BBC Radio 4's Money Box. Indeed, low-income savers make up the majority of the group who can claim some of the money back and the resource notes that the Revenue is urging Britons to check their savings accounts statements to see if they are eligible to make a claim. Pensioners in particular could do with the financial boost, Ms Merrills states, although there are two groups of people who should certainly come forward. The first is anyone whose income is below the personal tax allowance which, for the 2008-09 financial year, stands at £6,035 for anyone under the age of 65. The second group are those whose income is above that figure, but within £2,320 of it. But how do these individuals go about claiming their tax back? And has the interest rate cut further damaged the savings accounts of people who take home a low, or no, income?

Britons earning below the allowance

The BBC notes that people taking home an amount lower than the personal tax allowance should not be paying any tax and therefore can seek to get it back. The allowance rises to £9,030 a year before older individuals have to start paying tax, peaking at £9,180 for those aged 75 and above.

As such, Ms Merrills advises: "People need to add up all their income together, pensions and so on, including the income from those bank or building society accounts. If the total is less than their allowance they need to fill in [the] form R85 so they don't get tax taken off.

"They should also contact us and we can send them a form - an R40 - and you do need one for each tax year but you can claim back to 2002-03."

Britons earning above the allowance, but just

The interest of savings of people who earn within £2,320 of the personal tax allowance should be taxed at ten per cent. Indeed, Ms Merrills tells the BBC that any extra tax that has been over-deducted can be reclaimed by filling out the R40 form. However, individuals within both groups who are confused about what to do should contact one of two Revenue helplines. To enquire about claiming overpaid tax back, people should call 0845 366 7850. Individuals who wish to register to have interest paid gross should ring 0845 980 0645. But what about Britons who, rather than needing to claim tax back, have had their savings accounts hit by the Bank of England's interest rate cut?

Not in the interest of low-income savers?

Pensioners are one of the main groups who are set to suffer from the interest rate cut to two per cent, as many live off investments and money in their savings accounts. Indeed, the Daily Mail notes: "As the base rate plunged from 5.75 per cent to two per cent this year, savers saw their income on £10,000 plummet to less than £25 a month before tax on easy access high street accounts.

"A year ago, a £10,000 deposit earned 5.65 per cent - before tax - in Halifax Extra Income, a branch-based account designed to pay out monthly interest to those living off their savings.

"That rate has already more than halved to 2.75 per cent."

And fixed-rate bonds have been withdrawn from sale by lenders, who have replaced them with lower interest products. However, Gordon Brown has announced a plan which he hopes will solve this problem. Speaking on BBC Radio 5 Live, the prime minister hinted that allowing Britons to stash more cash in tax-free individual savings accounts was an option than he and Alistair Darling may look at. As such, the Telegraph states that the government claims it will continue to discuss any tax-incentivised savings boosts that could benefit people.

But Adrian Coles, director-general of the Building Societies' Association claims that since the over-55s are the age group most likely to invest funds in building societies, high street lenders will do what they can to protect pensioners from a reduction in their income.

Abbey states that its upgraded Super Fixed Rate Monthly Saver offers an eight per cent annual equivalent rate fixed for 12 months. Once again the advice is clear: shop around for the best savings accounts in order to avoid a head on collision with the declining interest rate.

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