Pensions Contributions: Maximise tax relief

23rd June 2022

We are seeing more and more cases of individuals missing out on claiming higher rate tax relief on their employee pension contributions especially where they are not in self-assessment and required to file tax returns.


Where employers have enrolled their staff to make employees pension contributions via a ‘relief at source’ scheme, the contributions are deducted from the employee’s net salary (after tax has been deducted). The employer deducts only 80% of the total contribution from the employee’s net salary, the scheme then adds an amount equal to basic rate tax relief, which it then reclaims from HMRC.


Under the ‘relief at source’ arrangement, the members get only basic rate tax relief up front and need to reclaim the balance of their full tax relief (40% for higher rate taxpayers and 45% for additional rate taxpayers) by completing a self-assessment tax return or writing to HMRC.


If you are a higher rate taxpayer, a quick check to see if you may be only receiving basic rate tax relief is to review your payslips and compare your ‘gross pay’ to your ‘taxable pay’ for the period. If they are the same and employee pension contributions are deducted, you may be making your contributions from net salary and only receiving basic rate tax relief. If this is the case, please get in contact with us and we can review your position and claim any tax due to you.


Recently, by way of an example, a client had historically been making employee pension contributions via a ‘relief at source’ arrangement which had gone unnoticed as they were not in self-assessment. We filed an overpayment relief claim to recover the tax relief due to our client for the previous 4 years being the maximum amount of years you can go back, which resulted in a repayment of just under £8,000.


There are a number of individuals missing out on this relief, if you think you may be making employee pension contributions out of net salary, please get in contact with us.

Disclaimer - All information in this post was correct at time of writing.
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