Tax relief can be applied in two very different ways (and it’s important to get it right):

• Deducting employee contributions after tax? We call this the net tax basis. You may see HM Revenue & Customs (HMRC) referring to this as the ‘relief at source’ method. When you sign up to The People’s Pension, we’ll automatically set you up on the net tax basis.

• Deducting employee contributions before tax? We call this the gross tax basis.  You may see HMRC referring to this as the ‘net pay arrangement’ method. If you choose this option, you’ll need to call us on 01293 586666 to set this up.

Tax relief can be applied in two very different ways (and it’s important to get it right):

• Deducting employee contributions after tax? We call this the net tax basis. You may see HM Revenue & Customs (HMRC) referring to this as the ‘relief at source’ method. When you sign up to The People’s Pension, we’ll automatically set you up on the net tax basis.

• Deducting employee contributions before tax? We call this the gross tax basis.  You may see HMRC referring to this as the ‘net pay arrangement’ method. If you choose this option, you’ll need to call us on 01293 586666 to set this up.

Gross tax basis works well if all your employees pay tax:

• Under this tax basis you’d deduct employee contributions from their pay before tax is taken. That’s why we call this tax basis gross.
• So, your employees will automatically get full tax relief on their contributions straightaway.
• But unlike the alternative net tax basis, it means lower paid employees who don’t pay tax will receive a payment to their bank account from HMRC – this will represent the tax relief they would have benefitted from if they were a taxpayer. Find out more.

With the gross tax basis, employee contributions are deducted from their pay before any tax is taken. This means they’ll get their full tax relief straightaway regardless of the band or rate of tax they pay, or whether they live in Scotland or elsewhere in the UK.

Example – John normally pays the basic 20% rate of tax. £50 goes from his wages into his pension savings, before any tax is taken from his pay. This reduces his taxable earnings by £50 so he pays £10 less in income tax.

However, any employees earning less than the standard personal allowance of £12,570 a year (for the current tax year) won’t receive tax relief because they don’t earn enough to pay tax.

Net tax basis is great for lower paid employees because:

• Under this tax basis, you’d deduct employee contributions from their pay after tax is taken.
• Then, we claim tax relief – at the basic 20% rate of tax – from HMRC.
• And it’s then added to your employee’s pension savings – even for any employees who don’t pay tax.

All your employees will get the basic 20% rate in tax relief added to their pension savings, even if they don’t pay tax. We must have a National Insurance number and up-to-date personal details for the employee to apply tax relief.

For example, even if they earn less than the standard personal allowance of £12,570 a year (for the current tax year) we’ll still apply tax relief.

And any higher or additional rate taxpayers will need to claim the extra tax relief direct from HMRC through their tax returns or by speaking to HMRC.

Example – Mike doesn’t earn enough to pay tax. £8 goes from his wages into his pension pot. Then The People’s Pension claims 20% in tax relief, adding an extra £2 to Mike’s pension pot – the same 20% rate as a basic rate taxpayer.