Pensions and Payroll: Tax Relief and Employer Checks for 2026/27.
Pensions can support your retirement plans and help manage your tax. But the outcome depends on who pays the contribution, how payroll handles it and your wider income.
Updated | UK workplace pensions and tax planning
What should you check about pensions and payroll?
Employers need to check pension eligibility, contribution calculations and payroll reporting. Employees should understand how their scheme gives tax relief and whether they need to claim more. For company owners, employer contributions can be useful, but the company’s tax position and the individual’s pension allowances both matter.
Here are the main checks for the 2026/27 tax year, whether you run payroll, receive a payslip or own the business.
1. Are workplace pension contributions being calculated correctly?
Employers must automatically enrol eligible workers who are aged 22 up to State Pension age, ordinarily work in the UK and earn above the applicable earnings trigger. For monthly-paid workers, The Pensions Regulator publishes this as £833 per month, with an annual threshold of £10,000.
Assessment is based on earnings in the relevant pay period. You do not wait until someone has earned £10,000 cumulatively during the year. Use the thresholds for your pay frequency.
Workers who do not qualify for automatic enrolment can still have the right to opt in or ask to join a workplace pension, depending on their age and earnings. Whether the employer must contribute depends on the applicable rules. Check eligibility, joining rights and exceptions.
For defined contribution schemes using the qualifying earnings basis, the statutory minimum requirements are:
| What to check | Statutory minimum requirements for 2026/27 |
|---|---|
| Qualifying earnings | Earnings between £6,240 and £50,270 a year |
| Employer contribution | 3% statutory minimum requirement |
| Total contribution | 8% statutory minimum requirement, including the employer contribution and any applicable tax relief |
That does not automatically mean 8% of someone’s whole salary. Some schemes use a different permitted earnings basis or higher contributions. Where the employer pays 3%, the remaining 5% includes tax relief where applicable. See the official contribution guidance.
Payroll should assess staff in the relevant pay period and include the pay elements required by the scheme. Bonuses, overtime and changes in earnings can affect the calculation.
2. How does pension tax relief work through payroll?
The names can be confusing. A net pay arrangement deducts contributions before Income Tax, while relief at source takes them from pay after tax.
| Arrangement | How it works |
|---|---|
| Net pay | Employee contributions reduce pay before PAYE Income Tax is calculated. Relief normally follows the employee’s tax rate automatically. Ordinary employee contributions do not reduce National Insurance. |
| Relief at source | Contributions come from pay after tax. The provider adds basic-rate relief. Employees paying tax above 20% may need to claim additional relief from HMRC. |
| Salary sacrifice | An agreed reduction in contractual cash pay is exchanged for an employer pension contribution. This has separate tax and National Insurance treatment. |
Confirm the method with your provider and match the payroll reporting fields to it. HMRC has highlighted errors where relief-at-source contributions are incorrectly reported as net pay.
Lower earners may also qualify for a separate HMRC payment where net pay contributions did not provide Income Tax relief. We explain this in our guide to low earner pension payments.
3. Could salary sacrifice help?
Under current rules, a valid pension salary sacrifice arrangement can reduce Income Tax and employee and employer National Insurance. It requires an agreed contractual change, not simply a different label on the payslip.
Cash pay must not fall below the applicable minimum wage. Review the arrangement when hours or rates change, and consider its effect on statutory pay and benefits. Read HMRC’s salary sacrifice guidance and our updated minimum wage checks.
4. Can a limited company pay into a director’s pension?
Yes. Employer contributions to a registered pension can form part of a director’s remuneration package.
Corporation Tax relief depends on the payment meeting the wholly and exclusively for the business test, including consideration of the overall remuneration package. The saving depends on the company’s actual tax position; it is not a guaranteed flat 25%. See HMRC’s guidance on controlling directors’ contributions.
Timing matters too. Relief is generally based on when the contribution is paid, rather than simply entered in the accounts.
Employer contributions are not restricted by the employee’s personal earnings limit in the same way as personal contributions, but they count towards the individual’s annual allowance. Check both the business and personal position before a large payment.
5. Can pensions help with Child Benefit or income over £100,000?
Eligible pension contributions can reduce adjusted net income, which is used for several important tax and benefit tests. This includes more than salary: dividends, rental profits and other taxable income can matter too.
- Child Benefit: the High Income Child Benefit Charge starts above £60,000 of adjusted net income and reaches the full amount of Child Benefit at £80,000. Where both partners exceed the threshold, the higher-income partner is liable. A pension contribution may reduce the charge. This is a tax charge, not automatic cancellation of the Child Benefit claim. See the current thresholds.
- Personal Allowance: it falls by £1 for every £2 of adjusted net income above £100,000 and is fully lost at £125,140. Pension contributions may help preserve it. See the Personal Allowance rules.
- Tax-Free Childcare: you cannot qualify if either partner expects adjusted net income over £100,000. Pension contributions may help with that test, but other eligibility conditions still apply. See the childcare rules.
For relief-at-source contributions, use the gross amount including basic-rate relief when calculating adjusted net income. Do not deduct contributions again if the relief has already reduced the taxable pay figure you are using. Follow HMRC’s adjusted net income calculation.
6. How much can you contribute with tax relief?
The standard annual allowance is £60,000, covering pension saving across all your schemes. This includes gross personal contributions, employer contributions and any relevant growth in defined benefit benefits. Exceeding your available allowance can trigger a tax charge.
Unused allowance from the previous three tax years may be available, subject to the carry-forward conditions. Higher earners can have a reduced allowance. Check the annual allowance rules before assuming £60,000 is available.
If you have triggered the money purchase annual allowance by flexibly accessing a pension, the limit for defined contribution saving is normally £10,000. Carry forward cannot increase that limit. See HMRC’s flexible-access guidance.
Separately, tax relief on personal contributions is normally limited to 100% of relevant UK earnings. Eligible people with little or no earnings can receive relief on up to £3,600 gross through relief at source. Dividends are not relevant earnings for this test. Carry forward does not override the earnings restriction. See HMRC’s personal contribution conditions.
Your practical pension payroll checklist.
- Check the setup: confirm the contribution basis, rates and tax-relief method with the provider.
- Review staff changes: assess eligibility and contributions when earnings, age or working arrangements change.
- Reconcile every payroll: match deductions, employer contributions, provider submissions and payments.
- Keep on top of duties: manage opt-ins, opt-outs, communications, payment deadlines and re-enrolment. Check ongoing employer responsibilities.
- Plan larger contributions: check affordability, allowances and payment timing before committing money.
The RiverView view.
Getting pensions right means joining up payroll, the business accounts and the individual’s tax position. A useful tax saving can be missed when each is considered separately.
Pension money is intended for retirement, so consider access restrictions and future cash needs as well as tax relief. We can help with payroll administration and tax calculations, alongside a financial adviser’s advice on pension suitability and investments.
Is your pension setup working as it should?
Our Payroll & HR team supports businesses in Calne, Wiltshire and beyond. Talk to us about your contribution setup, payroll reporting or the tax implications of a planned payment. If you need a financial adviser, we can make an introduction.
Useful guidance.
Rules and figures checked on 10 September 2026; automatic enrolment guidance reviewed on 14 September 2026. The official sources linked above explain the conditions and exceptions. For a starting point, see GOV.UK’s workplace pension guide and pension tax-relief guidance.
Frequently asked questions.
Is salary sacrifice the same as a net pay pension?
No. Net pay involves an employee contribution deducted before Income Tax. Salary sacrifice changes contractual cash pay in exchange for an employer contribution, so the National Insurance treatment also differs.
Does an employer contribution get another 20% added by the provider?
No. The relief-at-source top-up applies to eligible personal contributions. An employer contribution is paid as an employer contribution; the business’s potential tax deduction is separate.
What about holding commercial property in a pension?
That is a separate specialist planning question. Pension scheme rules, property tax, financing and transactions with your own business need reviewing together. It deserves its own article and advice before any commitment.
