HMRC toughens checks on pension tax relief: could you be missing out on extra money?

From 1 September, HMRC has made it tougher to claim pension tax relief, requiring everyone to evidence their claim for higher amounts. Previously, the requirement to evidence a claim was only placed on those paying in more than £10,000.

Those who have a pension in a ‘relief at source’ scheme or a personal pension like a Self-invested personal pension (SIPP) will need to be aware of these claims, as the tax relief is given back to your pension after income tax has been applied. If you have a salary sacrifice or net pay scheme, you will not need to worry about claiming your own tax relief. 

If your pension needs to be topped up for tax relief, and you're claiming for higher or additional rate tax relief (and the intermediate rate in Scotland), you will need to speak to your pension provider for evidence of what you’ve paid into the scheme throughout the year. If you can’t find this when you login to your pension account, or through the provider’s app if they have one, then you may need to contact the pension company and ask them to send it to you. 

You’ll then need to supply this information to HMRC when you make a claim for the tax relief owed to you.

How to claim additional relief

Claiming pension tax relief may feel like a pain but it could net you thousands of pounds. 

To start with, the best thing to do is find a payslip. That should show your National Insurance number and any contributions made to your pension. 

You then need to find out what type of scheme you’re in. Some schemes, normally known as ‘net pay’ arrangements, will pay pension contribution before any tax is paid. In this case income tax won’t have been deducted prior to the money being paid into a pension, meaning you’re already getting the full rate of relief and don’t need to claim.

But if your pension contributions are made after tax, normally described as ‘relief at source’ then your company will be making tax deductions and then calculating pension contributions. The pension scheme will automatically claim back 20% basic rate relief, but you must then claim the additional 20% or 25% relief yourself.

If you can’t tell from the information on your payslip what type of scheme you’re in, then contact your employer or the pension provider and ask them to tell you.

To claim you’ll need to contact HMRC directly and there are a few different ways in which you can do this. If you complete a tax return, you can include the information there and recover any tax relief owed.

If you don’t usually have to complete a tax return, you can claim the extra relief directly online from HMRC. You can also write to them, although it will take longer to process.

To claim online, visit the government webpage, and follow the link to claim.

You’ll need to login to your Government Gateway account. The online service from HMRC will then take you through a series of steps to confirm which tax year the claim applies to, as well as details about your employer, your payroll number and the contribution made to your pension. Most of this should be on your payslips or your P60, the end of year summary of your taxes. You’ll then be asked to upload some documents to evidence your claim, like a copy of your payslip or a record of your pension contributions from the scheme provider.

Once the claim is processed you’ll either get that extra relief through your tax code adjustment, a tax refund, or an adjustment to your tax bill for the year.

Why more people are paying higher taxes

Frozen tax thresholds and rising wages have dragged millions of people into a higher tax bracket over the last few years.

It’s particularly important for those people paying 40% tax for the first time to take note. That’s because they may only be receiving 20% tax relief – the basic rate – and are entitled to claim an additional 20% on top.

The stealth tax has been put in place as a means of raising tax without actually increasing the headline rate of taxation. If you’ve been a victim to the tax threshold freeze, you’ll already be paying a higher income tax bill as a result, so make sure you aren’t unwittingly shooting yourself in the foot, stumbling into another tax trap by failing to claim back the full 40% rate of income tax on your pension contributions. 

Number of higher and additional rate taxpayers by tax year:

Source: AJ Bell/HMRC