DC Spotlight - tax relief methods: what employers should keep in mind this new tax year

With the new tax year starting on 6 April, this is a good moment to revisit how your pension scheme gives tax relief. The method you use – net pay, relief at source (RAS) or salary sacrifice – shapes employees’ take‑home pay, their experience of saving and the accuracy of your payroll processes.

Understand the impact of your current method  

• RAS deducts contributions after tax and the provider claims 20% basic‑rate relief for the member, with higher‑rate taxpayers claiming any extra separately. For example, for a 5% contribution level, the employee pays 4% from their pay after tax + 1% reclaimed by the provider on their behalf.
• Net pay deducts contributions before tax, giving automatic relief at an employee’s highest marginal rate. For example, for a 5% contribution level, the employee pays 5% from their gross pay.
• Salary sacrifice means that employees sacrifice salary, reducing their gross pay with their employer making their contributions on their behalf, giving relief on both tax and National Insurance as well as reducing gross pay for other purposes. For example, for a 5% contribution, the employer pays this on behalf of the employee, whose gross pay is reduced by 5%.

These differences influence how intuitive the scheme feels and how fair outcomes are across salary bands.

Be ready for questions about HMRC’s low‑earner top‑ups

From 2024/25 onwards, HMRC will top up low earners in net pay schemes to fix a long‑standing issue where non‑taxpayers received no tax relief, unlike under relief at source (RAS). For example, an employee earning below the personal allowance who pays into a net pay scheme will now receive a separate HMRC payment equivalent to the 20% uplift they would have received under RAS. The top‑up is calculated by HMRC after the end of the tax year and paid directly to the individual, rather than into their pension.

With first payments due in 2026, employees may start asking how and when they will receive their top‑up. It’s worth making sure your teams can signpost the right guidance.

Check your scheme setup to avoid errors

Mix‑ups between net pay and RAS remain common, especially when payroll providers or processes change. Errors can mean tax relief is missed or duplicated and can be costly to fix. A simple annual check of your payroll and provider setup reduces the risk and helps maintain a smooth employee experience.

Consider whether a change would improve fairness

Non‑taxpayers receive an effective 20% uplift under RAS, while net pay historically offered no relief until the new HMRC top‑up system. Salary sacrifice works differently again: for employees who do not pay tax or National Insurance, there is typically no direct saving, and they may be better off contributing via RAS or net pay (with the HMRC top-up), even though the employer may still benefit from National Insurance savings.

If fairness, simplicity, or alignment to your reward principles matter, the start of the tax year is a sensible point to reflect on whether your current method is still right.

Factor in how salary sacrifice fits

Salary sacrifice can create meaningful National Insurance savings for both employer and employee. Given the attention it has received since the November 2025 Budget announcements, many employers are reviewing whether their approach remains optimal or if future changes could influence design or uptake.

Use the new tax year to refresh employee support

This is when many employees take stock of their finances. It’s a helpful time to strengthen your wider support – from clear, timely communications to reinforcing available tax reliefs and ensuring your processes make saving as simple as possible.

If you’re reviewing your tax‑relief method, considering a move to or from salary sacrifice, or want clarity on the risks and opportunities for your workforce, we can help. We can review your setup, support any rectification work, model the impact of alternative approaches and strengthen your employee communications.

If you’d like to sense‑check your arrangements or explore your options, please get in touch.

This blog is based upon our understanding of events as at the date of publication. It is a general summary of topical matters and should not be regarded as financial advice. It should not be considered a substitute for professional advice on specific circumstances and objectives. Where this blog refers to legal matters please note that Hymans Robertson LLP is not qualified to provide legal opinion and therefore you may wish to obtain independent legal advice to consider any relevant law and/or regulation.  Please read our Terms of Use - Hymans Robertson.