HMRC has announced that it will be contacting individuals who may not have benefited from pension tax relief under a Net Pay Arrangement (NPA) pension scheme, where they may have benefited under alternative pension arrangements.
It is expected that between 1 and 1.3 million individuals across the UK may qualify for a payment from HMRC under what is known as the Low Earners Pension Payment (LEPP). Communications are due to start in August 2026.
Why is HMRC issuing a payment?
Historically, employees whose earnings were at or below the Personal Allowance have not benefited from pension tax relief in the same way as members of pension schemes operating under the Relief at Source (RAS) method.
The LEPP is intended to address that disparity and applies from the 2024/25 tax year onwards.
NPA and RAS – What causes the disparity?
There are two common methods used to provide pension tax relief:
- Net Pay Arrangement (NPA): Pension contributions are deducted from pay before income tax is calculated. As a result, employees only receive tax relief where they pay income tax.
- Relief at Source (RAS): Pension contributions are deducted after tax, and the pension provider claims basic-rate tax relief from HMRC on behalf of the member. This means that even individuals who do not pay income tax can still benefit from tax relief on their pension contributions.
What Employers Need to Do
No action is required from employers.
HMRC is managing the review and payment process directly using information it already holds. However, we recognise that an employee’s first point of contact for pay-related queries is often their employer, which is why we are sharing this guidance.
As ever, ensuring employee contact details are kept up to date within your payroll software will help ensure that any written communications are sent to the correct address.
What Employees Need to Do
Employees do not need to contact HMRC or take any action at this stage but may wish to check that they have access to their Personal Tax Account in case HMRC use this method of contact.
Scam Awareness
As HMRC will be contacting individuals about money they may be owed, employees should remain vigilant. HMRC will never ask for passwords, PINs, or money transfers. If in doubt, communications should be verified directly with HMRC.
