This is one of the two ways you can get tax relief on the money you add to your pension pot.
Net pay arrangement means your contributions are taken from your gross pay (before your wages are taxed). So you only pay tax on what’s left – therefore you get your full tax relief straightaway. If you’re a basic, higher and additional taxpayer, you’ll automatically save 20%, 40%, or 45% respectively in tax relief.
- However, any employees earning less than £12,500 (2020/2021 figure) a year won’t receive tax relief because they don’t earn enough to pay tax.
- The alternative is relief at source.