Net tax basis is the default tax relief method with The People’s Pension where contributions are deducted from your employees’ wages after tax is taken. So we’ll automatically set you up on this arrangement when you sign up to The People’s Pension. HM Revenue & Customs (HMRC) call it ‘relief at source’.
Net tax basis is great for lower paid employees:
- 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.
All your employees will get the basic 20% rate in tax relief added to their pension savings, even if they don’t actually pay tax (for example, even if they earn less than the standard personal allowance of £12,500 a year for the 2020/21 tax year).
And any higher or additional rate taxpayers will need to claim the extra tax relief direct from HMRC through their tax returns.
Example – Mike doesn’t earn enough to pay tax. £8 goes from his wages into his pension pot. Then The People’s Pension claims 20% in tax relief, adding an extra £2 to Mike’s pension pot – the same 20% rate as a basic rate taxpayer.