Paying into a personal pension as a sole trader — how does the tax relief actually work?

Hi Hazel, here's the plain-English version. Most personal pensions work on a relief-at-source basis: you pay in £80 and your pension provider claims the 20% basic-rate tax relief from HMRC and adds it to your pot, so your contribution becomes £100. If you're a basic-rate taxpayer, that's the whole story — the relief is automatic. If you pay higher-rate or additional-rate tax, you claim the extra relief through your Self Assessment return, which extends your basic-rate band and effectively tops up the relief to your marginal rate. There's an annual allowance of £60,000 on tax-relieved contributions, and if you've got unused allowance from the previous three years you can carry it forward, which is handy in a bumper year. Just remember the contribution needs to actually be paid in the tax year you want relief for, so leave enough time before 5 April for it to clear.