Changes to pension tax relief: net pay top-ups

From April 2024, HMRC will start top-up payments for non-taxpayers in net pay schemes. The aim is to ensure low earners receive the same level of tax relief that lower earners receive in Relief at Source (RAS) schemes.

Currently, low earners (with taxable income below or just above £12,570) can see a difference in their take-home pay depending on how their pension scheme is run.

• Relief at Source: A 20% top-up is added to pension contributions – even if the individual doesn’t pay tax.
• Net Pay Arrangements: Tax relief is given at the individual’s tax rate – non-taxpayers get 0% relief.

This means low earners in net pay schemes take home less pay than if they were in a scheme using RAS.

HMRC will identify eligible individuals based on tax records. Payments will start in 2026 for the 2024/2025 tax year. HMRC will contact these individuals and ask them to provide their bank details to be able to make the payment.

What does this mean for your UK employees?

Employees should look out for a communication from HMRC so they don’t miss out and employers should support this by raising awareness in their pension communications.