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Are you getting full relief on your workplace pension contributions?

17th October, 2022

In order to encourage individuals to pay in to their pensions, the government provides tax relief on pension contributions. However, if you are a higher (40%) or additional rate taxpayer (45%), depending on which method your employer uses to deduct your contributions from your pay, you might not be getting all the relief you are entitled to…

There are two main methods by which tax relief is given:

Gross tax basis (net pay arrangement)

  • This method deducts your pension contributions from your gross pay. This means that you only pay tax on income paid after any pension contributions have been deducted. This method ensures that you receive full relief whether you are a basic rate (20%), higher rate (40%) or additional rate taxpayer (45%).
  • If you are receiving pension contributions under the relief at source or gross tax basis, you can rest assured that you are receiving the maximum amount of tax relief available.

Net Tax Basis (relief at source)

  • Under this method, any contributions made are taken from your net pay, i.e. after tax has been deducted.
  • When the contributions are made, your pension provider will automatically add a gross up of 25% and this equates to a basic rate tax (20%) relief of the grossed-up amount.
  • If you are a basic rate taxpayer, then you will be receiving full tax relief on your contribution.
  • However, if you are a higher rate (40%) or additional rate (45%) taxpayer, you will not be receiving the full tax relief on your contributions under the net tax basis. In this case you will need to claim the additional relief on your self-assessment tax return or by contacting HMRC if you are not required to file a self-assessment tax return.
  • Higher and additional rate taxpayers should let their tax advisor know if they are contributing under the net pay arrangement so that they can claim the additional tax relief, otherwise the relief might be wasted.
  • If you discover that you have not been receiving full relief on your contributions in previous years, it is possible to make a claim to receive the relief going back up to four years! Speak to your tax advisor who can assist in making this claim.

If you’d like further guidance, please speak to the team at Haggards Crowther or message us using the form below.