HMRC now pays a low earner’s pension payment to people whose workplace pension uses a net pay arrangement and who received less tax relief than relief at source would have given them. It applies to contributions from 2024 to 2025 onwards, HMRC finds eligible people itself and contacts them, and payments for 2024 to 2025 are being rolled out in phases through late 2026 and into early 2027.

Why do low earners in net pay schemes miss out?

There are two main ways of giving tax relief on member contributions. Under a net pay arrangement (section 193 of the Finance Act 2004) the employer deducts the contribution from pay before tax, so relief is only worth something if the member would otherwise have paid tax on that slice of income. Under relief at source (section 192) the member pays net of basic rate tax and the scheme claims that tax from HMRC, whether or not the member is a taxpayer.

HMRC’s Tax Information and Impact Note of 15 March 2023 sets out the result. Members of relief at source schemes receive a 20% top up even if they pay no income tax, while net pay members get relief at their marginal rate, which can be 0%. A low earner saving the same amount therefore takes home less pay in a net pay scheme. The note estimated that around 1.2 million people would be eligible from April 2024 and that women make up 75% of those earning below the personal allowance and contributing to net pay schemes. The comparison between the two systems is covered in our guide to relief at source vs net pay.

What does the law require HMRC to do?

Section 193A of the Finance Act 2004, inserted by section 25 of the Finance (No. 2) Act 2023, places a duty on HMRC to make arrangements, so far as reasonably practicable, to pay the individual directly. Three features have been there from the start:

  • the payment must be made as soon as reasonably practicable after the end of the tax year in which the contribution was paid (section 193A(4))
  • there must be a procedure allowing an individual to decline the payment (section 193A(5))
  • the Treasury may amend the section by regulations (section 193A(9))

As originally enacted, the section only applied where the person’s total income for the year did not exceed the personal allowance. The payment was income tax at the basic rate (or the Scottish or Welsh basic rate) on the contribution, scaled back by a formula where income plus the contribution went over the personal allowance. It was also treated as taxable employment earnings.

What changed in July 2026?

The Registered Pension Schemes (Net Pay Arrangements) Regulations 2026 (SI 2026/671) came into force on 14 July 2026 and rewrote section 193A(1) to (3). The Explanatory Memorandum says the original test left out some people whose income was above the personal allowance but who still received less relief under net pay than they would have under relief at source. The heading of the section now reads “disparity with relief at source”.

The new test is a straight comparison. HMRC pays the difference between:

  1. the section 193 amount: the reduction in the person’s income tax bill actually produced by net pay relief. If a higher figure results from ignoring tax reductions for married couples and civil partners and community investment tax relief, that higher figure is used, so those reductions cannot by themselves create a payment; and
  2. the hypothetical section 192 amount: the relief the person would have had if the contribution had been paid under relief at source. This starts with the basic rate deduction under section 192(1), adjusts it for the Scottish and Welsh rate rules in sections 192A and 192B, and adds any saving from extending the basic rate and higher rate limits under section 192(4).

The regulations also did two other things. They removed subsections (6) to (8), so the payment is no longer treated as taxable earnings, and they inserted section 193A(5A), which lets HMRC assess and recover a payment made in error as if it were income tax due for that year. HMRC’s pension schemes newsletter 184 adds that the regulations make sure payments do not affect entitlement to benefits or create National Insurance reporting requirements, and that eligibility now takes account of a wider range of reliefs, allowances and nil rate bands.

Who is likely to qualify?

HMRC’s June 2026 employer bulletin describes the typical case as someone who:

  • earned close to the personal allowance in a tax year, typically £12,570, and
  • contributed to a workplace pension through a net pay arrangement.

Eligibility is assessed separately for each tax year from 2024 to 2025 onwards, so a person can qualify for one year and not the next. HMRC said in June 2026 that it expected to contact around one million eligible people. Members of relief at source schemes are not affected because their scheme already claims basic rate relief for them. The personal allowance for 2026 to 2027 is £12,570; see our UK tax rates and thresholds for 2026 to 2027.

How is the payment made, and does anyone need to claim?

No claim is needed. HMRC identifies eligible people from information it already holds from employers and pension schemes, and the Explanatory Memorandum confirms it will not involve schemes or employers. The August 2026 employer bulletin reported a small delay: payments for 2024 to 2025 contributions will begin in the coming months, with a phased rollout over the rest of 2026 and into early 2027.

Eligible individuals should wait to be contacted by post or through their personal tax account and then follow HMRC’s instructions to accept the payment. The 2023 impact note explains that people will need to confirm or provide bank details through a digital service, because the money is paid to the individual rather than into the pension. Employers and payroll teams do not need to apply, assess eligibility, change payroll records or contact HMRC for employees.

Because HMRC is writing to people about money they are owed, scam messages are a risk. HMRC lists the low earner’s pension payment on its GOV.UK page for checking whether a message from HMRC is genuine, and it never asks for money transfers, PIN codes or passwords. Our guide to HMRC letters covers the official formats.

What does this look like in numbers?

Illustration only. These examples assume an English taxpayer with no other income, reliefs or allowances, and the 20% basic rate.

Priya Tom
Gross pay £10,000 £13,000
Net pay contribution £500 £1,000
Taxable pay after contribution £9,500 £12,000
Tax saved by net pay (section 193 amount) £0 £86 (20% of the £430 above £12,570)
Relief under relief at source (hypothetical section 192 amount) £100 £200
Low earner’s pension payment £100 £114

Priya pays no tax either way, so net pay gives her nothing and the payment makes up the full £100. Tom’s contribution takes him below the personal allowance. Net pay saves him tax only on the £430 that would have been taxed, and the payment covers the rest. Under the 2026 rules the payment is not added to his income for tax.

What should advisers and employees watch for?

  • Waiting is the process. There is no form to file, and HMRC says individuals do not need to contact it.
  • Several years may be due. Each year from 2024 to 2025 is tested on its own facts.
  • Older guidance is out of date. Material written before 14 July 2026 often says the payment is taxable and limited to people with total income at or below the personal allowance. Neither point now applies.
  • Money can be clawed back. A payment made in error can be assessed and recovered as income tax for the year under section 193A(5A).
  • Declining is possible. The law requires HMRC to offer a way to refuse the payment.
  • Higher earners are a different issue. The payment closes the gap for people who lose basic rate relief. Higher rate taxpayers in relief at source schemes still need to claim higher rate relief themselves.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.