How is tax relief calculated?

When you pay contributions to us on behalf of a worker, they’re made up of employer contributions and worker contributions. Employer contributions are set at a level you’ve agreed with us. Worker contributions depend on whether the worker is eligible for tax relief or not.

The tax relief method we use is relief at source (RAS), which means that we claim tax relief at the basic rate of 20% back from HM Revenue Customs (HMRC) on behalf of an eligible worker after contributions are paid to us.

If a worker is eligible for tax relief, their tax regime (Wales, England and N. Ireland or Scotland) will be based on the information provided to us by HMRC and you won’t be able to change it.

The basic rate of tax relief is 20%. This means, for every £1 of a worker’s contribution we’ll claim 20p from the government.

If the worker’s contribution is 5% and they’re eligible for tax relief then their actual contribution will be made up of:

• 4% from their pay – this is what you send to us
• 1% tax relief – this is what we claim from the government

So if a worker is eligible for tax relief the worker contribution level you set for them (5% in this example) is higher than the amount you actually send (which is 4%).

If a worker isn’t eligible for tax relief, the only difference is that the contribution you take from their net earnings will be the full contribution level you’ve set in their group. So, if you set 5% as the contribution level you’d send 5% worker contribution.

If you and your worker are in a salary sacrifice arrangement, the contributions will be paid as employer contributions and we won't be claiming any tax relief.