24 July 2026
For pay professionals, few pension topics cause as much confusion as Net Pay Arrangements (NPA) and Relief at Source (RAS). Our previous Quick Poll confirmed that many of you want clearer guidance on the differences.
Both methods provide tax relief on pension contributions and are widely used across workplace pension schemes. Yet many employers, and sometimes even experienced payroll practitioners, find themselves pausing when trying to remember which is which.
Why the names can be misleading
The confusion is understandable. In fact, the name themselves often appear to suggest the opposite of what actually happens and seem to have been created by a committee determined to confuse pay professionals. In reality, they describe how tax relief is given, not where the pension contribution is deducted from.
A NPA deducts a gross pension contribution, while RAS deducts a net pension contribution. Contradictory? Absolutely. Which is why these two arrangements continue to cause confusion.
With a NPA, the contribution is deducted before income tax is calculated, meaning employees receives tax relief automatically through the payroll. The employee pays tax on earnings that are net of the pension contribution, which is where the arrangement gets its name.
By contrast, with a RAS the contribution is deducted after the income tax has been calculated and the pension provider then claims basic-rate tax relief HMRC, adding it to the pension pot. The name comes from the fact the pension provider applies the tax relief at source through the pension scheme rather than the payroll.
Meet Nigel and Rosie
Nigel Net Pay Arrangement and Rosie Relief at Source meet for dinner. As pay professionals, they know that discussing pension tax relief over a meal is completely normal behaviour.
The bill arrives at the end of the meal and they both owe £100 and they are both entitled to a £20 discount on their meal.
Nigel’s discount is applied to the bill before he pays. His bill is reduced to £80 and this is all he needs to hand over. Rosie’s discount works differently as she pays £80 herself, but the restaurant claims the discount of £20 from HMRC when processing her bill. Both pay £80 on the £100 bill, although the discount is delivered in different ways.
The takeaway menu
|
Net Pay Arrangement |
Relief at Source |
|
Contributions deducted from gross pay
|
Contributions deducted from net pay |
|
Tax relief given through the payroll
|
Tax relief claimed by the pension provider |
|
Employee pays tax on earnings after the pension contributions are taken
|
Employee pays tax first, then receives a basic-rate tax relief top up in the pension pot |
|
Higher-rate tax payers automatically receive relief through the payroll
|
Higher-rate taxpayers may need to claim any additional relief from HMRC |
|
Think: discount applied before paying the bill
|
Think: pay the reduced bill first, then claim the discount from third-party |
The result may be similar, but the route the tax relief takes is very different. If you are ever unsure which arrangement you’re dealing with, don’t focus on the names. Instead ask yourself: who provides the tax relief?
If the answer is payroll, then it is a Net Pay Arrangement.
If the answer is the pension provider, then it is a Relief at Source.
Hopefully you will remember next time the topic comes up over dinner.
Information provided in this news article may be subject to change. Please make note of the date of publication to ensure that you are viewing up to date information.
