Are the contributions paid by ‘Relief at Source’ or ‘Net Pay Arrangement’?

When you set up your workplace pension with The People’s Pension, you can choose to deduct your employees’ contributions from their wages either before or after tax.

Tax relief can be applied in two very different ways (and it’s important to get it right):

  • Deducting employee contributions after tax? We call this the net tax basis. You may see HM Revenue & Customs (HMRC) referring to this as the ‘relief at source’ method. When you sign up to The People’s Pension, we’ll automatically set you up on the net tax basis.
  • Deducting employee contributions before tax? We call this the gross tax basisYou may see HMRC referring to this as the ‘net pay arrangement’ method. If you choose this option, you’ll need to call us on 01293 586666 to set this up.

 

 

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Net tax basis (deducting contributions after tax)

Net tax basis is the default tax relief method with The People’s Pension. So we’ll automatically set you up on this arrangement when you sign up to The People’s Pension. HMRC call it ‘relief at source’.

  • Under this tax basis you’d deduct employee contributions from their pay after tax is taken. (That’s why we call this tax basis net.)
  • Then, The People’s Pension claims the tax relief – at the basic 20% rate of tax – from the government.
  • And it’s then added to your employee’s pension savings – even for any employees who don’t pay tax.
  • And any higher or additional rate taxpayers will need to claim the extra tax relief direct from HMRC through their tax returns.

Gross tax basis (deducting contributions before tax)

Pension contributions taken under the ‘net pay arrangement’ are actually taken from the gross pay, not the net as HMRC’s title suggests! So we call it the gross tax basis instead.

  • Under this tax basis you’d deduct employee contributions from their pay before tax is taken. (That’s why we call this tax basis gross.)
  • So, your employees will automatically get full tax relief on their contributions straightaway.
  • But unlike the alternative net tax basis, it means lower paid employees who don’t pay tax won’t receive any tax relief.

For more information on the net and gross tax basis – please visit: Helping you with tax relief, or visit HM Revenue & Customs and The Pensions Regulator’s websites.

 

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