HMRC is writing to around 1 million people to tell them they are due a tax rebate, and officials are stressing that the letters are genuine and should not be thrown away. The letters, which began arriving this month, relate to the new Low Earner’s Pension Payment and are aimed at low earners who missed out on pension tax relief. On average, recipients are due around £53 back in cash, and an estimated 75% of those affected are thought to be women.
Why the letters are being sent
The campaign is designed to correct a longstanding difference that meant some workers on lower incomes missed out on pension tax relief simply because of the type of workplace pension scheme their employer used. People potentially affected typically earned around the £12,570 Personal Allowance and made pension contributions through a scheme operating a net pay arrangement.
Government guidance explains that workers in relief-at-source schemes can receive a 20% pension top-up even if they do not pay Income Tax, while low earners in net pay arrangements historically received relief at their marginal tax rate, which could effectively be 0%. The new payments are intended to correct that difference.
Warning against ignoring the letters
Former pensions minister Steve Webb said: “The process of getting these payments to the right people is going to be incredibly painful, and there is a real risk of huge non-take-up. Most people will not have a clue about this issue and may be suspicious of a letter out of the blue from HMRC offering them free money. Some may suspect it is a scam. It is vital that communications are effective to make sure that people get the money to which they are entitled.”
Thomas Drury, money-saving expert at The Investors Centre, is warning workers not to dismiss the correspondence as irrelevant, particularly if they earn too little to normally pay Income Tax. “The confusing part is that many of the people affected may reasonably think pension tax relief has nothing to do with them because they don’t earn enough to pay Income Tax. But that is exactly why this issue exists,” he said.
How the scheme works
HMRC will assess eligibility separately for every tax year from 2024/25 onwards, meaning some workers may eventually qualify for payments relating to more than one year. The Government previously estimated that around 1.2 million people could be affected by the underlying issue, with women expected to make up around 75% of those earning below the Personal Allowance while contributing through net pay arrangements.
Workers do not need to make an initial application or work out for themselves whether they qualify. HMRC says it will identify eligible individuals using information it already holds and contact them either by post or through their Personal Tax Account. Workers should then follow the instructions provided to accept their payment.
“You don’t need to ring HMRC and ask to be added to a list, and you don’t need to pay a company to find out whether you’re eligible,” Drury added. “If you think this might apply to you because you earned around £12,570 and contributed to a workplace pension, the sensible step is to make sure HMRC has your correct contact information and then watch for official correspondence. Don’t throw the letter away because you assume anything from HMRC must be asking you for tax. In this instance, HMRC could actually be contacting you because it owes you money.”
The letter-writing campaign begins this month and is set to last into 2027.
