In last year's budget, the government abolished the 10p income tax rate band and reduced the basic rate of tax from 22% to 20%. Both these changes took effect from 6 April 2008. Whilst the majority of taxpayers are better off as a result of these changes, some 5.1 million people on a low-income are worse off. Following the public backlash that resulted from these changes, in May this year the Chancellor Alistair Darling announced changes to the personal tax system to help those people who lost out as a result of the abolition of the 10p starting rate of tax.

The method chosen to compensate people is to temporarily increase the personal allowance – the amount of money you can earn before paying tax – by £600 to £6,035. At the same time, the 'higher rate threshold' – the level of income at which you start paying higher-rate tax - is reduced by £600 to £40,835.

These changes take effect from 7 September this year but are backdated to the start of the tax year (6 April).

The effect of these changes is that anyone with an 'L' tax code and income between £6,035 and £40,835 will gain £120 this tax year, normally paid as £60 in September with the remaining £60 paid at £10 a month over the next six months.

1) Will everyone who lost out be fully compensated by these changes?

No. Some people on very low incomes have already lost £230 as a result of the abolition of the 10p tax rate and will only receive just over half of that back (£120) as a result of the changes that take effect in September.

2) Will this increased level of payment continue for the duration of my pension?

No, the changes announced in May take effect in September and will apply for the current tax year only.

3) Why have I only been paid some of the extra £120 that the Government/press has told me about, rather than the full amount?

The reforms announced in May are intended to focus support on basic rate taxpayers only. However the interaction of the increased personal allowance and the reduced higher-rate threshold means that some people who have become higher-rate taxpayers as a result of these changes will also receive a proportion of the tax refund.

Also, those people with incomes between £5,435 and £6,035 will receive less than the full amount.

4) Why haven't I been paid any of the extra £120 that the Government/press has told me about?

The tax refund will only apply to basic rate taxpayers who are entitled to the basic personal allowance (i.e. those whose tax code ends with an L).

5) When will the £120 tax refund be paid?

£60 of the refund will normally be paid in September, with the remaining £60 paid at £10 a month over the next six months; however the timing may be different if you have received a pension payment since 6 April (which will not have included any tax refund due resulting from the personal allowance changes that come into effect in September).

Also, anyone who receives their pension payment from 7-11 September will have any tax refund due to them paid with their following pension payment (due to the fact that the system we use to make annuity payments will have created the payment details before the personal tax allowance change comes into effect (as the system operates four days in advance of the payment date).

You should contact HMRC if you wish for a detailed explanation of how the changes affect your personal circumstances, including when any refund due to you will be made. www.hmrc.gov.uk.