Tax relief for your pension scheme

What do you need to know? We take a look at the way you'll need to treat tax relief when you calculate your employees' pension contributions.


Tax relief for your pension scheme

 

Your employees are entitled to receive tax relief on their pension contributions, which is good news for them.

There's more than one method for employees to obtain tax relief on the pension contributions they make. Aviva’s workplace pension scheme uses the relief at source tax method to apply tax relief to your employees’ pension schemes.

What does this mean?

 

It means you'll need to deduct pension contributions, net of basic rate tax relief, from their take-home pay rather than their gross pay.

So, if your employee is contributing 5% to their pension scheme, you'll only take 4% from their salary after tax has been deducted. The other 1% is tax relief, which will be reclaimed from HMRC by Aviva and added to their pension pot. This means that the employee is making an overall 5% pension contribution, though they'll only see a 4% deduction on their payslip.

What they’ll see on their payslip

Monthly pay: £2,000.00
5% pension count: £100.00
Taxable pay: £2,000.00
NI able pay: £2,000.00
Tax paid: £191.40
NI paid: £144.96 
Pension deduction: £80.00
Take home pay: £1,583.64

The example relates to a tax payer resident in England, for the 2020/21 tax year.


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