From August 2026, HMRC begins contacting around a million people about a payment they may not know they are owed. The low earner's pension payment — previously referred to as the low earner's anomaly — tops up workers who paid into a workplace pension through a net pay arrangement and earned too little to receive tax relief on their contributions.

HMRC identifies those people from information it already holds, which is to say from payroll data. That makes this a good month for any firm running payroll to check something that has been quietly capable of going wrong for years: whether each scheme's tax relief method is set correctly in the software.

The error is unusually well camouflaged. It is a single setting, chosen once at set-up, and every payslip afterwards looks entirely normal.

The employee's pension contribution is deducted from gross pay before income tax is worked out. Because taxable pay is already reduced, relief happens automatically and at the employee's marginal rate.

This is efficient and invisible, and it works perfectly for anyone who pays income tax.

The employee's contribution comes out of pay after tax has been calculated. The pension provider then reclaims basic rate relief from HMRC and adds it to the pot. Higher and additional rate taxpayers claim the balance through self assessment.

The crucial difference: the provider's reclaim does not depend on the employee having paid any tax.

An employee earning below the personal allowance pays no income tax. There is no tax for a net pay arrangement to relieve, so the contribution attracts nothing. The same employee, in a relief at source scheme, receives a 20% uplift from HMRC regardless.

Two people, identical salaries, identical contributions, different outcomes, decided entirely by the scheme their employer happened to choose. In HMRC's own words, low earners with taxable incomes below the personal allowance “can have different levels of take-home pay depending on how their pension scheme is administered.”

📌 Key date: The low earner's pension payment applies from the 2024 to 2025 tax year onwards. HMRC begins contacting eligible individuals from August 2026, starting with the 2024 to 2025 tax year; notifications for 2025 to 2026 follow later.

The measure places a duty on HMRC to make top-up payments directly to eligible individuals, so far as is reasonably practicable. Eligibility runs to people contributing to an occupational pension through a net pay arrangement whose total taxable income falls below the personal allowance, and is assessed separately for each tax year from 2024 to 2025 onwards.

An amount equal to the income tax relief not already received on the contribution, at the relevant rate. For someone whose total taxable income sits below the personal allowance, that is 20% of the gross contribution — the uplift a relief at source scheme would have delivered. Where income sits partly above the allowance and some relief was already obtained, the top-up is restricted to the shortfall.

The payment goes to the individual's bank account, not into the pension pot, and is itself chargeable to income tax. Treasury figures published in July 2022 put the average gain at around £53 a year, with roughly 200,000 people in line for £100 or more; around three-quarters of those expected to benefit are women.

From information already provided. Individuals do not have to prove entitlement. HMRC identifies them and makes contact by post or through the personal tax account, inviting them to accept the payment and supply bank details — through the personal tax account or by telephone — so the money can be paid to a bank account. HMRC does not issue these payments by cheque.

⚠️ Watch: The identification depends on the payroll data being right. If a scheme's relief method is recorded incorrectly, an employee can be missed, or flagged when they should not be. This is the practical reason the setting matters more this year than last.

Payroll software asks, at scheme set-up, how pension tax relief is handled. The choice determines whether contributions are deducted before or after tax is calculated. It is a single decision, made once, usually by whoever configured the scheme.

Both methods produce a payslip that looks reasonable. The contribution appears, the net pay appears, and nothing throws an error. There is no exception report for “this scheme is being operated under the wrong method”, because from the software's perspective it is doing exactly what it was told.

The second direction is the one that has attracted attention, because relief given twice is an overpayment somebody eventually has to unwind.

Three places at once. The employer, through PAYE that was not operated correctly. The employee, whose position may need adjusting in either direction. And HMRC's own dataset, which is now being used to decide who receives a low earner's pension payment.

Employees are about to receive letters from HMRC about their pension tax relief. Some of them will bring the letter to their employer, or to you. A firm that has already checked its schemes answers that conversation in a minute.

✅ In practice: Questions like “is this scheme net pay or relief at source, and what happens if it has been run the other way?” are exactly the kind that need an answer with the guidance attached rather than a recollection. GAIN Tax answers UK tax questions with the legislation and HMRC guidance pinned to each point, so a payroll manager can confirm rather than remember. Our published benchmark sets out how often that holds, and where our answers come from and how they are kept current sets out the sourcing. Create an account to try it on a live query.

Net pay arrangements and relief at source are two routes to the same destination for anyone paying income tax, and two very different destinations for anyone who is not. That is the net pay anomaly, and the low earner's pension payment is the government's answer to it: a duty on HMRC to top up affected low earners from the 2024 to 2025 tax year onwards, with contact beginning in August 2026 and each tax year assessed on its own.

The mechanism runs on payroll data. Which makes the underlying payroll setting, chosen once and rarely revisited, worth ten minutes of attention across every scheme a practice touches.

The review is short: what the provider says the scheme is, against what the software thinks it is. Everything difficult about this error follows from those two things disagreeing.

For related reading on getting high-volume factual questions right first time, see our guide to choosing AI tax research software in the UK or browse the blog.

Under a net pay arrangement, pension contributions are deducted from gross pay before income tax is calculated, so relief is automatic at the employee's marginal rate. Under relief at source, contributions come from after-tax pay and the pension provider reclaims 20% from HMRC and adds it to the pot, which works even for employees who pay no income tax.

It is the outcome where an employee earning below the personal allowance receives no tax relief on pension contributions because they are in a net pay arrangement, while an identical employee in a relief at source scheme receives a 20% uplift. HMRC describes it as low earners having different take-home pay depending on how their pension scheme is administered.

A duty placed on HMRC to make top-up payments to individuals who contributed to an occupational pension through a net pay arrangement and whose total taxable income was below the personal allowance. It applies from the 2024 to 2025 tax year, with eligibility assessed separately for each year. The payment equals the income tax relief not already received on the contribution — 20% of the gross contribution where income was fully below the allowance, and the shortfall where partial relief was already obtained. The payment is made to the individual, not the pension pot, and is chargeable to income tax.

From August 2026, HMRC begins contacting eligible individuals, using information it already holds rather than requiring anyone to claim. Contact comes by post or through the personal tax account, and the first round covers the 2024 to 2025 tax year, with 2025 to 2026 following later. Those contacted are asked to accept the payment and supply bank details — through the personal tax account or by telephone — so the top-up can be paid directly to a bank account. HMRC does not pay by cheque, and it never asks for money transfers, PINs or passwords.

If a scheme is genuinely a net pay arrangement but the payroll is configured as though it were relief at source, contributions are deducted after tax while the pension provider also reclaims basic rate relief from HMRC. Relief is then effectively given twice on the same contribution, and the overpayment has to be unwound.

Take the tax relief method the pension provider says applies to each scheme, and compare it against the method configured in your payroll software for that same scheme. Then confirm contributions are being deducted at the correct point in the calculation. Where the two disagree, quantify the difference by tax year before correcting, and take advice on the PAYE consequences.