HMRC has updated its guidance on reclaiming pension tax relief at source, changing how pension scheme administrators must transfer their annual return files to HMRC. The revision, dated 21 August 2026, rewrites the section on submitting the annual return of information through HMRC‘s “Transfer files securely with HMRC” service, the channel administrators use to report every member contribution paid in the previous tax year.
It sounds technical because it is. But relief at source is the mechanism behind the 20% top-up that lands in millions of UK workplace pensions, including many run for staff at small firms. Getting the reporting wrong, or missing a deadline because of a process change, has a direct knock-on effect on what ends up in an employee’s pension pot.
How relief at source actually works
Under relief at source, a member only pays into their pension after basic rate tax has effectively been deducted. HMRC’s own example is straightforward: if someone wants to make a £100 contribution, they pay in £80, and the scheme administrator reclaims the missing £20 from HMRC and adds it to the pot.
The important detail for SME employers is that this happens whether or not the member actually pays tax. A part-time or low-earning member still gets the 20% top-up, which is one reason relief at source is common in sectors with a lot of part-time and minimum wage staff, such as retail and hospitality.
Who this update actually affects
Most small businesses do not reclaim this relief themselves. That job sits with the pension scheme administrator, typically a workplace pension provider such as Aviva, The People’s Pension, Smart Pension or Now Pensions. Workplace schemes generally use one of two tax methods, relief at source or net pay, and this update only concerns the first of those. HMRC’s guidance does not set out which of the major providers uses which method, so do not assume based on the provider’s name: if your business offers a workplace pension, ask the provider directly which method your scheme uses. If it is relief at source, the file-transfer change is theirs to manage, not yours. If it is net pay, this particular update does not apply to your scheme.
Where it does bite is for firms that administer their own scheme, such as a small self-administered scheme, or payroll bureaus and accountants who file claims on a client’s behalf. Those businesses need to check the updated annual return of information process directly with HMRC before their next submission, particularly given that interim claims covering July and August will not be paid until the previous year’s annual return and declaration are in.
It is also a reminder that HMRC keeps tightening how it wants data submitted, a pattern SME owners have already seen play out with Making Tax Digital for Income Tax. The direction of travel is the same: fewer paper processes, more prescribed digital formats, and less tolerance for administrators who fall behind.
What this means for your business
If your workplace pension runs on relief at source, this update changes nothing about the amount your staff receive. What matters more to most SME owners is confirming their payroll data, particularly employees’ residency status for UK, Scottish or Welsh tax purposes, is accurate, since HMRC will not correct underclaimed relief automatically.
Firms without an in-house pension specialist are usually better placed asking their accountant or adviser to confirm nothing has changed on their side, in the same way many are already leaning on outside expertise for wider financial planning, as seen in Fairhurst Accountants’ review of the Small Business Plan. It is also worth checking that whatever bookkeeping software handles your payroll reconciliation, such as the changes recently made to Xero’s auto bank reconciliation, is correctly matching pension contributions against payslips.
The practical takeaway: ask your pension provider or payroll bureau, in writing, whether this HMRC update affects how or when your staff’s relief at source top-up is claimed. For most SMEs the answer will be no. For those running their own scheme, it is worth confirming before the next annual return is due.
