As part of the HMRC June 2026 Employer Bulletin, there is an article that highlights that the Low Incomes Tax Reform Group (LITRG) made HMRC aware of an error in the August 2023 issue of the employer bulletin and a corrected reissued article.
Tax relief on employee contributions to registered pension schemes
The text below is based on a replacement for the section of the August 2023 issue of the employer bulletin entitled ‘Tax relief on employee contributions to registered pension schemes’.
There are two main methods to obtain tax relief on employee pension contributions.
HMRC has found some employers are making mistakes in their reporting, which may be because of the names given to each method by HMRC.
These methods are known as:
- Net pay arrangement (NPA) — referred to as ‘employee pension contributions that are paid under a net pay arrangement’ on the Full Payment Submission (FPS)
- Relief at Source (RAS) — Referred to as ‘employee pension contributions that are not paid under a net pay arrangement’ on the FPS
Net pay arrangement (NPA)
For a net pay arrangement, the employer will deduct the pension contribution from an individual’s earnings before operating PAYE. The employee will automatically get tax relief at their marginal rate of income tax without needing to make any additional claim.
Relief at Source (RAS)
The employer will deduct an amount from pay for the pension contribution, after income tax has been charged through PAYEdeductions.
The pension scheme provider will claim the basic rate tax equivalent from HMRC’s Pension Scheme Services and top up the individual’s pension pot by the amount claimed.
In Relief at Source arrangements the individual will need to claim any higher or additional rate tax relief from HMRC against their tax code or self-assessment. Further information on how to claim tax relief on your private pension payments is available.
For example, an individual making a relievable pension contribution of £100 actually contributes £80 through deduction by the employer from their pay after PAYE deductions. That £80 is passed on by the employer to the pension scheme provider. The pension scheme provider subsequently and separately claims the basic rate tax equivalent of £20 from HMRC’s Pension Scheme Services which is added by the provider to the pension pot of the individual. The individual would then need to contact HMRC to claim any additional relief due.
The individual cannot choose the method of tax relief for themselves. The default for all new registered pension schemes has been Relief at Source since April 2006. However, an employer can elect at the start of a new pension scheme to operate a net pay arrangement as long as that scheme meets certain conditions. Once registered, the form of tax relief is set.
Real Time Information (RTI) FPS submissions — examples of mistakes
This could be when an employer makes the mistake of reporting RAS (not under net pay) contributions through RTI in the data fields for a net pay scheme. This results in providing tax relief through payroll incorrectly, in addition to the tax relief correctly provided through the pension scheme provider and HMRC’s Pension Scheme Services. The excess relief provided is an employer payroll failure, and the employer is liable for the tax under-deducted and not remitted to HMRC.
Any employer that is uncertain should check with their scheme provider on how the scheme is registered. If any employer then determines that their payroll is configured incorrectly they should correct this immediately. Their payroll will be incorrect if they have reported:
- net pay contributions in the FPS reporting field for ‘employee pension contributions that are not paid under a net pay arrangement’, or
- RAS contributions in the FPS reporting field for ‘employee pension contributions paid under a net pay arrangement’
If you are a large business with a Customer Compliance Manager (CCM), you should report this through direct engagement with your CCM.
Opinion
The terms are backwards, the subject complex. There is still a high number of employers who are applying and reporting pension contributions incorrectly on the FPS to HMRC.
A suggestion simplification to HMRC would be to change the terms:
- Net Pay Arrangement – before tax
- Relief At Source – after tax
Some employers continue to get these the wrong way around.
It would be good for an employer to audit and verify their payroll settings to ensure they are correct. Errors lead to the wrong tax relief being applied and failure of pension scheme rules.
PAYadvice.UK 18/6/2026