06 July 2026
In a recent research paper, the Low Incomes Tax Reform Group (LITRG) has warned that confusion around workplace pension tax relief rules may be leading some employers to apply pension contributions incorrectly.
The issue centres on the two different methods used to provide tax relief: Net Pay Arrangement (NPA) or ‘Relief at Source (RAS), which can be easily misunderstood, particularly due to the terminology used in payroll systems.
Under a Net Pay Arrangement, the pension deductions are taken before tax is calculated, meaning that the employee is given tax relief automatically through payroll at their marginal rate. However, where a low earner does not pay tax, there is no tax liability to reduce and therefore no tax relief is received on their pension contributions.
To address this long-standing issue, the Government introduced the low earner’s pension payment through the Finance Act 2024. This payment is designed to ensure individuals who earned close to the personal allowance in any tax year from 2024 to 2025 onwards and contributed to a workplace pension through a Net Pay Arrangement receive a top-up payment from HM Revenue and Customs (HMRC). Low earners are due to be contacted by HMRC directly from August 2026.
We would therefore like to understand how confident pay professionals are in their knowledge and administration of workplace pension tax relief.
Please take a moment to share your views in our new Quick Poll, as we greatly appreciate your input.
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