Do I get higher rate tax relief automatically through my employer?

This guide explains whether higher rate pension tax relief is automatic through your employer and how different pension schemes affect your eligibility through PAYE.

At Towerstone, we specialise in higher rate pension tax relief advice and have written this article for employees unsure how relief is applied. The purpose of this article is to explain when relief is automatic and when you must claim, helping you make informed decisions.

Many higher earners assume their employer gives them higher rate pension tax relief automatically. I hear this all the time from people who pay into workplace pensions or personal pensions and believe all their relief happens behind the scenes without any action from them. In reality it depends entirely on the type of pension scheme you are paying into. Some employers give higher rate relief automatically through PAYE but others do not. If you are in the wrong type of scheme you may be missing out on hundreds or even thousands of pounds of extra tax relief each year.

In my opinion this is one of the most misunderstood areas of UK payroll because people do not realise that pension schemes use different contribution methods. Only two of those methods give higher rate tax relief automatically. If you are in a scheme that uses the third method you must claim the extra relief yourself.

This guide explains exactly when higher rate tax relief is automatic through your employer, when it is not, how to check which type of scheme you have, and how to claim any missing relief. By the end you will know exactly where you stand.

The quick answer

You only get higher rate tax relief automatically through your employer if your pension uses:

  • Salary sacrifice
    or

  • Net pay arrangement

You do not get higher rate relief automatically if your pension uses:

  • Relief at source

If your scheme uses relief at source you must claim the extra relief yourself through Self Assessment or by asking HMRC to adjust your tax code.

In my opinion this one detail explains 99 percent of the confusion people face.

Why higher rate taxpayers need extra relief

Pension contributions always attract basic rate tax relief (20 percent). Higher rate taxpayers should receive an additional 20 percent. Additional rate taxpayers should receive even more.

Example

You contribute £100 to your pension.

  • Basic rate relief: £20

  • Higher rate relief: an extra £20

  • Total tax relief: £40

If your employer does not give you the extra £20 automatically you will lose money unless you claim it.

The three pension contribution methods and how they affect tax relief

Understanding your scheme method is essential. Each method treats pension tax relief differently.

1. Salary sacrifice

Higher rate relief is automatic through PAYE

Salary sacrifice means you agree to reduce your salary and your employer pays that amount into your pension.

Tax impact

  • Your gross salary is reduced

  • You pay no income tax on the sacrificed amount

  • Higher rate relief is automatic because that income is never taxed

  • You also save employee National Insurance

  • Your employer also saves employer NI

Example

You sacrifice £400 a month.
Your salary is reduced by £400 so PAYE does not apply tax to that £400 at all.
You receive full tax relief instantly.

In my opinion

Salary sacrifice is the most efficient method for higher rate taxpayers because you never need to claim anything.

2. Net pay arrangement

Higher rate relief is automatic through PAYE

With a net pay arrangement your pension contribution is deducted from your gross salary before tax is calculated.

Tax impact

  • Taxable pay is reduced

  • You automatically receive relief at your highest tax rate

  • No further action needed

Example

Your gross salary is £4,000.
Your pension contribution is £400.
Payroll reduces taxable pay to £3,600.
Tax is calculated on £3,600 at the correct higher rate.

In my opinion

Net pay arrangements are simple and reliable for higher rate earners.

3. Relief at source

Higher rate relief is NOT automatic

Relief at source is used by:

  • Personal pensions

  • SIPPs

  • Stakeholder pensions

  • Many workplace group personal pensions

  • Most pensions offered by insurers

How it works

You pay the contribution from your net pay.
Your pension provider adds 20 percent basic rate relief.
Higher rate relief is not added automatically.

Example

You pay £80.
Your pension provider adds £20.
Your pension receives £100.
If you are a higher rate taxpayer HMRC owes you another £20 in relief.

How to get the extra

  • Claim through Self Assessment
    or

  • Ask HMRC to adjust your tax code

In my opinion

This is where most higher rate taxpayers miss out because they do not realise they must claim manually.

How to check which pension method your employer uses

Look at your payslip. It will tell you everything.

Signs your pension uses salary sacrifice

  • Your gross pay is lower than your contractual salary

  • Pension appears as an employer contribution

  • NI contributions are lower

  • Your pension deduction is not listed as a standard deduction

Signs your pension uses net pay arrangement

  • Your pension contribution appears before tax

  • Taxable pay is lower than gross pay

  • Your pension provider does not add relief separately

Signs your pension uses relief at source

  • Pension deduction appears after tax

  • Taxable pay equals gross pay

  • Your pension provider adds basic rate relief to your contributions

If you see after tax pension deductions you almost certainly need to claim higher rate relief yourself.

Does HMRC ever adjust your tax code automatically?

Sometimes yes. HMRC may adjust your tax code to account for pension contributions if:

  • They receive information from your provider

  • You have claimed previously

  • You update your income estimates

  • They detect relief at source contributions in your tax history

But HMRC does not always get it right. In my opinion you should check your tax code every year to make sure it includes pension relief where appropriate.

How to claim higher rate tax relief if it is not automatic

You can reclaim the extra relief in one of three ways.

1. Claim through Self Assessment

If you complete a tax return this is the easiest way.

Add the total of your gross contributions (your payment plus the 20 percent added by your provider).

HMRC will refund the extra relief through:

  • A direct refund
    or

  • A reduction in your tax bill
    or

  • A new tax code

Example

You contribute £4,000 net (relief at source).
Your provider adds £1,000 basic rate relief.
Your total gross contribution is £5,000.
You are entitled to an extra £1,000 higher rate relief.

2. Ask HMRC to update your tax code

If you do not file a tax return:

  • Log in to your Personal Tax Account

  • Add your estimated pension contributions for the year

  • HMRC will adjust your code

This reduces your monthly tax bill gradually and gives you the extra relief through PAYE.

3. Write or call HMRC

You can contact HMRC and tell them your yearly pension contributions. They will adjust your tax code or issue a refund accordingly.

What happens if you do nothing?

If your pension uses relief at source and you do not claim higher rate relief you lose money.

Example

You contribute £500 a month net to a SIPP.
Gross contribution: £625.
Higher rate relief due: £125 per month.
Annual relief lost if you do nothing: £1,500.

In my opinion everyone paying into a relief at source pension should check this every year.

Common misunderstandings

“My employer handles my pension so I must get the relief automatically.”

Not always. It depends entirely on the scheme.

“I pay into a workplace pension so I do not need to claim anything.”

Many workplace pensions use relief at source.

“HMRC will fix it automatically.”

Not unless you tell them or file a tax return.

“I checked last year so I am fine.”

Your employer can change pension providers or contribution methods.

“It is too complicated to claim.”

It usually takes less than 10 minutes.

Real world examples

Example 1: Relief at source workplace pension

Holly earns £55,000 and pays into her workplace pension. Her payslip shows after tax pension deductions. She realises her employer does not give higher rate relief automatically. She calls HMRC who adjust her tax code and her take-home pay increases.

Example 2: Salary sacrifice

Mike earns £70,000 and uses salary sacrifice. His taxable income is reduced and he receives full relief automatically through PAYE. No action required.

Example 3: SIPP

Priya pays into a SIPP monthly. Her provider adds basic relief but she must claim higher rate relief through Self Assessment. She gets a refund of £1,200.

Example 4: Employer changes pension scheme

A company switches from a net pay arrangement to a relief at source pension. Higher rate staff no longer receive relief automatically and start underclaiming. An HR update resolves the issue.

In my opinion: the essential things you need to know

If I had to summarise this topic quickly I would say:

  1. Higher rate relief is automatic only in salary sacrifice and net pay schemes.

  2. Relief at source schemes require you to claim the extra relief yourself.

  3. Your payslip reveals which type of scheme you are in.

  4. You should check this once a year to avoid missing relief.

  5. HMRC can adjust your tax code to give relief through PAYE.

  6. Self Assessment is the most accurate way to claim missing relief.

  7. Many higher rate taxpayers lose money simply because they do not know they need to claim.

In my opinion checking your pension method is one of the quickest ways to boost your take-home pay.

Final thoughts

Whether you get higher rate pension tax relief automatically through your employer depends entirely on the pension contribution method used. If your scheme operates salary sacrifice or net pay arrangement then yes, you receive the full relief automatically through PAYE without needing to do anything. If your scheme uses relief at source then no, you must claim the extra relief yourself.

In my opinion everyone earning above the higher rate threshold should check their payslip and pension type at least once a year. It takes only a few minutes but can save you a significant amount of money. Pension tax relief is one of the most generous tax benefits available so it is essential not to miss out.

If you would like to explore related pension guidance, you may find Do pension contributions reduce my adjusted net income and Does higher rate pension relief affect child benefit or personal allowance useful. For broader pension guidance, visit our pensions knowledge hub.