RPSM05201010 - Member Pages: Contributions and
tax relief: Member contributions - methods of obtaining tax
reliefs
What are the different methods of obtaining tax relief?
Tax relief on your contributions to
registered pension schemes can be given in a
variety of ways however you may be restricted to certain methods
depending on what type of scheme you are a member of. So
either:
- if you pay contributions to your
employer’s occupational pension scheme, tax relief can be
automatically given through the PAYE system. Here the employer
deducts your contribution from your gross pay before income tax is
deducted on the balance and passes the contributions to the
scheme administrator or other designated body.
This is called the net pay arrangement of giving tax relief and
enables you to receive tax relief at your marginal rate of income
tax, or
- your 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 your behalf and add it to the your pension
fund. This is called the Relief at Source method of giving tax
relief and is regarded as the standard method of obtaining tax
relief if you have
relevant UK earnings to tax of less than the basic
amount of £3,600.
- If you are a higher rate taxpayer you will
also need to make a claim for any additional tax relief by making a
claim on your self-assessment form, or
- where you make gross contributions to a
registered pension scheme, you can make a claim to HMRC to obtain
the tax relief on the contribution. The amount of the contribution
is then relieved by being deducted from your total income for the
tax year in which the payment is made. The deduction will be shown
on your Self-Assessment to show the correct amount of tax
relief.
You cannot choose which method of tax relief applies, this is
determined by the method the pension scheme is allowed to operate
under the legislation. You should contact your scheme administrator
for further guidance.
