One million people in line for a tax top-up from HMRC - are you one of them?
Around one million people who missed out on pension tax relief are in line for a top-up – but a former pensions minister is warning people could miss out on the payments.
Around a million workers are being urged to look out for letters landing on their doorstep in the next few weeks telling them they’re entitled to free money from the government.
HMRC is kickstarting a campaign this month to offer top-ups to people who didn’t receive pension tax relief because of the way their workplace pension scheme was administered.
Workers whose occupational pension schemes issue tax relief through a net pay arrangement (NPA) could be entitled to the top-up.
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A NPA is when pension contributions are taken out of your monthly pay before tax is calculated. It means you receive tax relief there and then.
Typically, people earning £10,000 or more a year are automatically enrolled into workplace pension schemes, but under an NPA method, those earning between this amount and £12,570, and therefore not paying income tax, aren’t eligible for pension tax relief.
If these same people were in a workplace pension scheme using the relief at source (RAF) method, the employer automatically would claim tax relief from the government to add to their pension and they would benefit from pension tax relief.
Employees have no choice in whether they are signed up to a workplace scheme that uses the NPA or RAF method.
The government is seeking to compensate these lower earners who have been in NPA occupational schemes from 2024/25 onwards and estimates that around one million people are affected, of which 75% are women who may have earned less due working part time or taking a career break. The top-ups are worth £53 on average.
MoneyWeek asked HMRC to comment.
When will I receive the top-up?
From this month, HMRC will start contacting the one million eligible people via letters in the post or through their personal tax account.
HMRC said these letters or notes on personal tax accounts will explain what people need to do to accept payments, which are expected to start over the “coming months”.
The letters will be rolled out gradually and into early 2027, HMRC said.
“Real risk” low earners won’t claim free money
Steve Webb, former pensions minister and now partner at pension consultants LCP, warned that people unexpectedly receiving these letters offering them ‘free’ money may suspect them to be a scam and not claim what they’re entitled to.
Webb said: “The process of getting these payments to the right people is going to be incredibly painful and there is a real risk of huge non take-up.
“Most people will not have a clue about this issue and may be suspicious of a letter out of the blue from HMRC offering them free money.”
Webb is urging people to check their post in the coming weeks to make sure they do not miss out.
Will I be entitled to a top-up in future years?
The process set up by HMRC is offering top-ups to people who may have missed out on pension tax relief in 2024/25.
Once registered, these low earners are expected to receive the top-ups through a more automated system for future years, if they’re still eligible, Webb said.
HMRC will assess eligibility each tax year and so you may qualify for a payment this year but not future payments.
