Supporting Guidance: employer compliance: guidance by subject: net pay arrangements: approved pension schemes
Where an employer operates a registered pension scheme, that is an occupational pension scheme, they can
- use the net pay arrangements.
Employers can only use the net pay arrangement if it is used for all employees who are members of the occupational registered pension scheme. Written authority from HMRC is not required.
The net pay arrangements
- allows employers to deduct the employees’ pension contributions from employees’ gross pay for tax purposes only however
- the amount of pension contributions remain liable to National Insurance.
You should remember that the net pay arrangements do not apply to contributions to
- Stakeholder Pension schemes
- Personal Pension Schemes, including Group Personal Pension schemes, or
- Retirement annuity contracts.
From 6 April 2006 occupational pension schemes have been able to operate Relief at Source (RAS) to give members tax relief on their contributions. Where a pension scheme uses RAS, pension contributions should be deducted from pay after tax.
Although some small occupational schemes have chosen to use RAS, in practice most occupational pension schemes continue to use the net pay arrangement.
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