Under net-pay arrangements the employer deducts the relievable pension contributions from an employee’s taxable employment income before operating PAYE (FA 2004, s. 193(1), (2)). In this way, the individual receives tax relief at his or her marginal rate of tax.

As indicated in ¶376-300 above, net-pay arrangements may be operated in two situations:

in the case of an occupational pension scheme (see ¶375-350) where the member is an employee of a sponsoring employer and all other members who are employees of that employer also receive relief under the arrangement, and

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