If any of your staff are making pension contributions and are higher rate taxpayers (i.e. income from all sources of more than £50,270), they might be missing out on some tax relief. When an employee puts money into a pension, the amount they contribute effectively becomes tax-free. There are two main ways in which that’s achieved. One method is for the contributions to be taken off the employee’s gross pay before tax is calculated. Where that’s the case, no further tax-relief is due.
However, the more common method is for the contribution to be taken out of the employee’s net pay. This is the method used by NEST, which is by far the most common workplace pension provider among our clients. For every 80p the employee contributes, the government puts an extra 20p into their pension fund. For basic rate taxpayers (who pay 20% tax), this method means they’re effectively getting all of the tax back on their pension contributions already. But for higher rate taxpayers, there’s another 20p still to come. Taxpayers can get a refund by calling or writing to HMRC, or by including the pension contributions on their tax return. As an example, a higher rate taxpayer making pension contributions of £150 a month could be entitled to a tax refund of £450 for the year.
It’s in no way your responsibility to advise your staff on their tax affairs of course, but if you’ve got any employees who you know to have income over £50k and who are making contributions to a workplace pension, you might like to mention the possibility of tax relief to them, in case they’re not aware of it.
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