PAYE Settlement Agreement - what is it and what to do?

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A PAYE Settlement Agreement, otherwise referred to as a PSA, is a process that allows employers to make one annual payment that covers tax and National Insurance contributions (NICs) on minor, irregular or impracticable expenses or benefits on behalf of their employees.

① How do you get a PSA❓

In order to obtain a PSA, employers are required to write to HMRC describing the expenses and benefits they wish to include in their PSA.

Once both parties have agreed on what can be included, HMRC will send two copies of a P626 form. The employer is then required to sign and return both copies.

HMRC will then authorise the request and return a form which will then act as the PSA.

For the 2019/20 tax year, HMRC reformatted the PSA process, ensuring that PSAs were automatically renewed year on year in what is known as an “enduring agreement”. Up until then, companies that wished to implement a PSA had to apply annually before the start of the tax year.

Companies with an enduring PSA in place only need to write to HMRC in the event that the employer wishes to make amendments to the benefits on the PSA.

If the employer wants to cancel the PSA then they only need to complete and return the slip at the bottom of the P626.

② What is included in a PSA❓

Minor benefits and expenses include things like incentive awards. These may be handed out to employees as a reward for their long service within an organisation.

Other items such as small gifts and vouchers also fall under this category, as well as telephone bills or staff entertainment - e.g. annual parties.

Irregular benefits and expenses relate to things that are not paid regularly throughout the course of a tax year. They are typically things that employees do not necessarily have a contractual right to - e.g. relocation expenses over £8,000, attendance at overseas events or the use of a company holiday venue.

Impracticable benefits and expenses refer to items or events that don’t have a fixed value. Examples would be personal care expenses, shared cars or special staff events.

PAYE Settlement Agreements

PAYE Settlement Agreements (PSA) allow employers to make an annual payment to HRMC for some types of expenses and benefits.

③ What’s not included in a PSA❓

Companies cannot include cash payments such as wages and beneficial loans or high-value benefits such as company cars or company accommodation within a PSA.

④ When are the deadlines❓

A PSA1 form has to be submitted no later than the 6th of July following the end of the tax year. The tax and NICs due under a PSA must be paid no later than the 22nd of October.

⑤ How can PayFit help❓

If you are unsure about PSAs or just want to find out more about the benefits associated with using them, one of our payroll specialists is always available to offer a helping hand.

Furthermore, if you want to ensure that your company is ready for the end and start of the tax year, you can check out our PayFit checklist. There you will find important dates and information that will help you and your business to remain compliant.

PayFit blog author

PayFit blog author

PayFit

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