Can I Get Higher Rate Pension Relief if I Am Self Employed

Learn how self employed people can claim higher rate pension tax relief and how to claim the extra relief through Self Assessment.

At Towerstone, we specialise in higher rate pension tax relief advice and have written this article for self employed higher rate taxpayers. The purpose of this article is to explain how pension relief works and how to claim it, helping you make informed decisions.

Self employed people can still get higher rate pension tax relief, but the process works differently compared with employees. This guide explains how it works, what relief you can claim, how to calculate it and in my opinion the best way to make sure you never miss out.

Many self employed individuals worry that they lose out on pension benefits available to employees, especially when it comes to tax relief. I often hear people say they think higher rate pension relief applies only to those who are paid through PAYE. That is not correct. The self employed can claim exactly the same levels of relief, but the way it is claimed depends on how contributions are paid and how much profit you make.

This article explains how pension tax relief works for sole traders, partnerships and those with self employment income. You will understand when higher rate relief applies, how to claim it through Self Assessment, what counts as relevant earnings and in my opinion the easiest method to make sure you claim every penny you are entitled to.

Understanding Pension Tax Relief for the Self Employed

Self employed people do not have a workplace pension scheme unless they create one for themselves. Most use a personal pension, a stakeholder pension or a SIPP.

The good news is that the government still adds tax relief to your contributions even if you are not on payroll.

There are two layers of relief:

  1. Basic rate relief (20 percent) added automatically by your pension provider

  2. Higher or additional rate relief claimed through Self Assessment if your income falls into those tax bands

Employees receive higher rate relief automatically through payroll. The self employed must claim it themselves. This is the main difference.

How Basic Rate Relief Works for the Self Employed

When you pay into a personal pension your pension provider automatically claims 20 percent tax relief on your behalf.

For example:

  • You pay £80

  • HMRC adds £20

  • £100 goes into your pension

This happens to everyone, regardless of income level.

If you never move into higher rate tax, that is the end of the process. If you do move into higher rate, you can claim more through your tax return.

Can You Get Higher Rate Relief if You Are Self Employed

Yes. Higher rate pension relief is available to anyone whose taxable income falls into the higher rate band or above, including self employed individuals.

In my opinion many self employed people miss out because they do not realise they must claim the extra relief manually. HMRC does not add it automatically.

You can claim higher rate or additional rate pension relief if:

  • your total income places you in the 40 percent or 45 percent tax bands

  • you contribute personally to a pension

  • you complete a Self Assessment return

Once claimed, HMRC either reduces your tax bill or provides a refund.

How Higher Rate Pension Relief Works for the Self Employed

Higher rate relief is given through the tax return, not through your pension provider. The pension provider adds only the basic 20 percent.

When you file your Self Assessment you:

  • report your gross contributions

  • HMRC calculates the extra relief due

  • your tax bill reduces by the extra 20 percent or 25 percent

  • or you receive a repayment if tax has already been paid

For example:

You contribute £5,000 personally
Your provider claims £1,000 basic relief
Your gross contribution is £6,000

If you are a higher rate taxpayer you can claim an extra 20 percent, so:

  • extra relief = £6,000 x 20 percent = £1,200

If you are an additional rate taxpayer:

  • extra relief = £6,000 x 25 percent = £1,500

This relief reduces your tax bill pound for pound.

What Counts as Relevant Earnings for Pension Relief

To receive tax relief you need “relevant earnings”. For the self employed this usually means:

  • taxable trading profit

  • income from professional services

  • partnership profit shares

Investment income or rental income does not count as relevant earnings for personal pension limits.

Your annual pension contribution limit is the lower of:

  • £60,000
    or

  • your relevant earnings for the year

However you can also use carry forward from previous years if eligible.

Examples of How Higher Rate Relief Works

Example 1: Self employed income of £55,000

You are in higher rate tax.
You contribute £4,000 personally.
Your provider adds £1,000.
Total gross contribution = £5,000

Extra relief due = £5,000 x 20 percent = £1,000

HMRC reduces your tax bill by £1,000.

Example 2: Self employed income of £90,000

You pay £10,000 personally.
Your provider adds £2,500.
Gross contribution = £12,500

Because some income is in the higher rate band and some is in the additional rate band, relief is split proportionally.

You could receive:

  • 20 percent basic relief

  • 20 percent extra higher rate relief

  • 25 percent extra additional relief

Example 3: Income fluctuates

A self employed person earns £28,000 one year and £52,000 the next.
They receive only basic relief in year one.
They receive higher rate relief in year two.
This shows that eligibility changes based on yearly profit.

Why Many Self Employed People Miss Out on Higher Rate Relief

In my opinion there are three main reasons.

Reason 1: They believe the pension provider applies higher rate relief

It does not. The provider only applies 20 percent basic relief.

Reason 2: They forget to include contributions on their Self Assessment

If you skip this section on the return HMRC will not apply the additional relief.

Reason 3: Confusion about the “relief at source” and “net pay” methods

Self employed pensions use relief at source, not net pay.
Net pay applies only to workplace schemes, which the self employed do not have.

What If You Do Not Submit a Tax Return

If you are self employed you must submit a tax return, so you should always have the opportunity to claim the relief.

If you fail to complete a return or forget to include the pension contribution you can:

  • amend your tax return within 12 months

  • request a refund for older years if within the four year correction window

HMRC allows late claims within certain limits.

Can You Claim Higher Rate Relief If You Have PAYE Income Too

Yes. Many people are part employed and part self employed.

As long as you:

  • file a Self Assessment

  • report your contributions

  • have income in the higher rate band

you can claim higher rate relief.

Does Making Pension Contributions Reduce My Higher Rate Tax

Yes. Pension contributions extend the basic rate band.
This means that less of your income is taxed at higher rate.

In practice:

  • you increase your basic rate threshold by the gross pension contribution

  • more income is taxed at 20 percent instead of 40 percent

  • this gives you your higher rate relief

This is one of the most valuable tax planning tools for the self employed.

In my opinion anyone approaching the higher rate band should consider pension contributions as part of their tax strategy.

What Happens If I Contribute More Than My Profit

If you contribute more than your relevant earnings your tax relief is capped.

Example:

You earn £30,000 profit
You contribute £40,000 personally

You receive relief only up to £30,000 gross.

However, unused allowances from the previous three years may help if you have enough past earnings.

Can I Get Higher Rate Relief If My Income Falls Later

Yes. Higher rate relief is based on the year the contribution is paid.

If you earn £60,000 in 2024 to 2025 and make a pension contribution you can claim higher rate relief even if your income drops in the following year.

Should I Increase Pension Contributions to Reduce Tax

In my opinion contributing to a pension is one of the most tax efficient decisions a self employed person can make.

The benefits include:

  • reducing higher rate and additional rate tax

  • building long term wealth

  • receiving government top ups

  • smoothing tax bills across years

  • reducing payments on account

  • improving retirement planning

However you must ensure you have enough cashflow to support contributions consistently.

How to Make Sure You Never Miss Higher Rate Relief Again

I always recommend three simple steps.

Step 1: Keep a record of contributions

Write down every contribution you make and keep statements from your pension provider.

Step 2: Enter the gross pension contribution on your tax return

This is the contribution including basic relief.
Your provider will show this clearly on your statement.

Step 3: Check your tax calculation before submitting

Your calculation should show reduced tax because of pension relief.

If you want certainty, an accountant can check this for you.

Real World Scenarios

Scenario 1: Sole trader earning £48,000

Makes a £5,000 pension contribution.
Receives basic relief automatically plus higher rate relief on the part of income above £37,700.

Scenario 2: Freelancer earning £80,000

Contributes £12,000 gross.
Receives higher rate and additional rate relief.
Tax bill reduces significantly.

Scenario 3: Newly self employed person

Earns £30,000 and contributes £2,000.
Receives only basic relief, which is correct because income is within the basic rate band.

Scenario 4: Person with a job and a side business

Earns £35,000 PAYE and £20,000 self employed.
Contributes £10,000 to a pension.
Receives higher rate relief because total income is £55,000.

Conclusion

Self employed people can absolutely receive higher rate pension relief. The relief works in the same way as it does for employees but you must claim the extra portion through your Self Assessment tax return. In my opinion this is one of the most valuable tax planning tools available to sole traders and freelancers, especially those whose profits push them into the higher rate band.

As long as you record your contributions correctly, report the gross amount on your return and understand your plan for each tax year, you can make the most of the relief available and reduce your overall tax bill while building a stronger retirement fund.

If you would like to explore related pension guidance, you may find Can I get higher rate relief if I pay into someone else’s pension and Can I still claim higher rate relief if I have changed jobs useful. For broader pension guidance, visit our pensions knowledge hub.