One million people in line for a tax top-up from HMRC
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 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.
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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 £70 on average and will be paid by bank transfer.
An HMRC spokesperson said: “Customers don’t need to apply or contact us – we’ll send them information about how to receive their payment via post or their online tax account.
“We know some people may be cautious about unexpected contact, which is why we provide clear information about what to expect and how to verify the contact is genuine.
“Customers can check a letter is genuine on gov.uk and should only respond via official HMRC channels. We’ll never ask for passwords, PINs or money to be transferred to claim a payment.”
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 being claimed 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.
