RPSM05300030 - Scheme Administrator Pages:
Contributions and tax relief: Member contributions - overview: How
is tax relief given on contributions
How is tax relief given on contributions made by scheme
members?
Tax relief on contributions to
registered pension schemes that is paid by members
can be given in a variety of ways. So either:
- member contributions to the pension scheme
can be treated as amounts paid after deduction of basic rate income
tax. The pension scheme can then recover the tax relief at the
basic rate from HMRC on the member’s behalf and add it to the
member’s pension fund. This is called the Relief at Source
method of giving tax relief (see
RPSM05301000), or
- where a member pays contributions to their
employer’s
occupational pension scheme tax relief can be
automatically given through the PAYE system. Neither the member or
scheme administrator needs to take any action. The employer deducts
the member’s contributions from the gross pay before income
tax is calculated on the balance and passes it to the
scheme administrator or other body. This is called
the net pay arrangement of giving tax relief, or
- where a member makes gross contributions
to a registered pension scheme, the member makes a claim to HMRC to
obtain the tax relief on the contribution. The amount of the
contribution is then relieved by being deducted from the
member’s total income for the tax year in which the payment
is made. The deduction will be shown on the member’s
Self-Assessment to give them the correct amount of tax relief,
or
- the method of relief for a particular
registered pension scheme will be as decided by the scheme
administrator or as provided under the scheme provisions. The
conditions applying must conform to the requirements of the Finance
Act 2004 as necessary. It may be possible, depending on the
circumstances, that more than one method applies in relation to the
same scheme or even the same member, or
- under section 191(2) FA 2004, relief at
source is the method to apply if provisions are not made for an
alternative method, and if the legislation does not require use of
an alternative method.
