Can I claim higher rate pension relief through PAYE?

This guide explains whether you can claim higher rate pension relief through PAYE covering salary sacrifice, net pay arrangements, relief at source and tax code adjustments for UK taxpayers.

At Towerstone, we specialise in higher rate pension tax relief advice and have written this article for employees paying into pensions through work. The purpose of this article is to explain how PAYE based claims work and what to ask for, helping you make informed decisions.

From experience, this is one of the most misunderstood areas of the UK pension system, and it catches out thousands of higher rate taxpayers every year. People know that pensions are tax efficient. They know basic rate tax relief is added automatically. What they are far less clear on is how higher rate relief actually works in practice, and whether it can be claimed through PAYE rather than through a tax return.

In my opinion, the confusion is not the taxpayer’s fault. The system works differently depending on how your pension contributions are made, who runs the pension scheme, and how your pay is structured. The rules are logical once you understand them, but they are rarely explained .

The short answer is yes, in many cases you can claim higher rate pension relief through PAYE, but not always automatically, and not in every setup. Whether it happens without you doing anything, or whether you need to take action, depends entirely on how your pension contributions are deducted.

In this guide I will explain clearly and practically how higher rate pension relief works, when PAYE can deal with it for you, when it cannot, and what you need to do to make sure you are not missing out. Everything here reflects real world UK tax practice and aligns with the rules set by HM Revenue and Customs.

First, what is higher rate pension relief?

Let’s start with the basics, because everything else builds on this.

When you pay into a pension, the government gives you tax relief on your contributions. This is designed to encourage saving for retirement.

If you are a:

  • Basic rate taxpayer, you get 20 percent tax relief

  • Higher rate taxpayer, you are entitled to 40 percent relief

  • Additional rate taxpayer, you are entitled to 45 percent relief

The important point is that most pension schemes only give you the basic rate relief automatically. Any extra relief you are entitled to as a higher or additional rate taxpayer has to be claimed separately, unless your pension operates under specific payroll arrangements.

From experience, this is where people lose money without realising it.

The most important question you need to answer

Before asking whether you can claim higher rate relief through PAYE, you need to know this:

How are your pension contributions taken from your pay?

There are three main methods used in the UK:

  • Relief at source

  • Net pay arrangement

  • Salary sacrifice

Each one treats tax relief differently, and only some allow PAYE to deal with higher rate relief automatically.

Relief at source pensions

Relief at source is the most common setup for personal pensions and many workplace pensions, especially auto enrolment schemes.

Under relief at source:

  • Your pension contribution is taken from your net pay

  • The pension provider adds basic rate tax relief

  • For every £80 you pay in, £100 goes into your pension

This works perfectly for basic rate taxpayers, but it does not automatically give higher rate taxpayers their full relief.

If you are a higher rate taxpayer using relief at source:

  • You only get 20 percent relief automatically

  • The extra 20 percent must be claimed

This is where PAYE can sometimes help, but only if you take action.

Can higher rate relief be claimed through PAYE with relief at source?

Yes, it can, but not automatically.

If you are a higher rate taxpayer and your pension uses relief at source, you must tell HMRC about your pension contributions. Once HMRC knows, they can adjust your tax code so that you receive the extra relief through PAYE.

In practice, this means:

  • Your tax code is changed

  • Less tax is taken from your salary

  • You receive the higher rate relief gradually during the year

From experience, many people never do this step, which means they permanently miss out on money they are entitled to.

How do I tell HMRC if I am on PAYE?

You do not need to complete a full Self Assessment tax return just to claim higher rate pension relief.

You can inform HMRC by:

  • Calling them

  • Writing to them

  • Using your Personal Tax Account online

You tell them:

  • How much you contribute to your pension in a tax year

  • Whether the contributions are personal or workplace

  • That the scheme operates relief at source

HMRC can then adjust your PAYE tax code accordingly.

In my opinion, this is one of the simplest yet most underused tax actions available to higher rate taxpayers.

Net pay arrangement pensions

Net pay arrangements work very differently.

Under a net pay arrangement:

  • Pension contributions are taken before tax

  • Your taxable pay is reduced

  • You automatically get full tax relief at your highest marginal rate

This means:

  • Basic rate taxpayers get full relief automatically

  • Higher rate taxpayers get full relief automatically

  • There is nothing extra to claim

From experience, many public sector pensions and older workplace schemes use net pay arrangements.

If you are in a net pay arrangement, PAYE already handles your higher rate pension relief, and you do not need to do anything further.

How do I know if my scheme is net pay or relief at source?

This is a crucial question, and many people are unsure.

A simple way to check is to look at your payslip.

If your pension contribution is deducted before tax, reducing your taxable pay, you are likely in a net pay arrangement.

If your pension contribution is deducted after tax, and the provider adds tax relief later, you are likely in a relief at source scheme.

From experience, payroll or HR can usually confirm this very quickly if you ask.

Salary sacrifice pensions

Salary sacrifice is another common arrangement, particularly in the private sector.

Under salary sacrifice:

  • You agree to give up part of your salary

  • Your employer pays that amount into your pension

  • Your gross salary is reduced

This means:

  • You do not pay income tax on the sacrificed amount

  • You do not pay National Insurance on the sacrificed amount

  • There is no need to claim pension tax relief

In effect, salary sacrifice gives you full tax relief automatically, and often saves National Insurance as well.

From experience, salary sacrifice is usually the most tax efficient way to contribute to a pension, where it is available.

Can I claim higher rate relief through PAYE with salary sacrifice?

No, because there is nothing to claim.

With salary sacrifice:

  • The contribution is not treated as your income

  • Tax is never charged on it

  • PAYE has already done the job

From experience, people sometimes worry they are missing out on relief here, but they are not.

When PAYE cannot deal with higher rate relief

There are situations where PAYE cannot practically adjust things, or where it is not appropriate.

Common examples include:

  • Large one off pension contributions

  • Variable income year to year

  • Bonuses paid late in the tax year

  • Changes in tax band part way through the year

In these cases, higher rate relief is often claimed through Self Assessment instead.

From experience, PAYE works best for regular predictable contributions.

PAYE versus Self Assessment for higher rate relief

This often causes confusion, so let me be clear.

You can claim higher rate pension relief either:

  • Through PAYE via a tax code adjustment

  • Through a Self Assessment tax return

You do not claim it twice.

PAYE spreads the benefit across the year. Self Assessment gives it back as a refund or reduction in tax due after the year ends.

In my opinion, PAYE is simpler for most people who are already employed and paying regular contributions.

What if I am already in Self Assessment?

If you already complete a Self Assessment tax return, you usually claim higher rate pension relief there instead of through PAYE.

In that case:

  • You report your gross pension contributions

  • HMRC calculates the extra relief

  • It reduces your tax bill or increases your refund

From experience, this is straightforward once you know where to enter the figures.

What if my income changes during the year?

This is very common.

If your income moves in and out of higher rate tax during the year:

  • PAYE adjustments may be imperfect

  • Self Assessment may be more accurate

From experience, HMRC will reconcile things at the end of the year, but proactive communication reduces surprises.

How much could I be missing out on?

This is where people are often shocked.

If you contribute £10,000 gross to a pension under relief at source:

  • You pay £8,000

  • The provider adds £2,000

If you are a higher rate taxpayer, you are entitled to another £2,000 in relief.

From experience, many people never claim this, effectively overpaying tax by thousands over time.

In my opinion, this is one of the most expensive misunderstandings in personal finance.

Common mistakes I see all the time

From experience, the most common errors include:

  • Assuming higher rate relief is automatic

  • Not knowing which pension method applies

  • Forgetting to tell HMRC about contributions

  • Missing relief on previous years

  • Believing PAYE cannot handle pension relief

Most of these mistakes are easy to fix once identified.

Can I backdate a claim for higher rate relief?

Yes, usually.

You can normally claim higher rate pension relief for previous tax years, subject to time limits.

From experience, this is often done where people discover they have missed out for years.

In my opinion, checking past contributions is well worth the effort.

Practical steps I recommend from experience

If you want to make sure you are claiming higher rate pension relief correctly, I recommend:

  • Checking how your pension contributions are deducted

  • Confirming whether your scheme is relief at source or net pay

  • Estimating your annual pension contributions

  • Contacting HMRC if you are a higher rate taxpayer

  • Reviewing whether PAYE or Self Assessment suits your situation

These steps usually result in immediate clarity and often a tax saving.

The emotional side of this issue

I want to acknowledge something important.

People often feel frustrated or annoyed when they realise they have been overpaying tax for years without knowing it.

From experience, that feeling is normal. The system is not intuitive.

In my opinion, the right response is not anger, but action. HMRC allows corrections, and most people can recover at least some of what they missed.

So can I claim higher rate pension relief through PAYE?

Yes, in many cases you can.

If your pension uses relief at source and you are a higher rate taxpayer, you can ask HMRC to adjust your PAYE tax code so that you receive the extra relief through your salary.

If your pension uses net pay or salary sacrifice, PAYE already gives you full relief automatically.

If your situation is complex or irregular, Self Assessment may be the better route.

Key Takeaways

From experience, higher rate pension relief is one of the most generous but least understood features of the UK tax system.

In my opinion, anyone paying higher rate tax and contributing to a pension should take the time to understand how their relief is delivered. It is not tax avoidance. It is simply claiming what you are entitled to.

If there is one takeaway, it is this. Do not assume pension tax relief is automatic. Check how your scheme works, check how you are taxed, and make sure PAYE or Self Assessment is actually giving you the full benefit.

If you would like to explore related pension guidance, you may find Can I claim higher rate relief if I already used a salary sacrifice scheme and Can I claim higher rate relief if I pay into a personal pension useful. For broader pension guidance, visit our pensions knowledge hub.