PAYE Settlement Agreements (PSA) involve certain benefits and expenses allowed to employees, and enable the employer to pay the tax and National Insurance on such benefits. This way, no tax liability is triggered for the employee and there is no need to report the benefit or expense on individual P11Ds of the employees. What can a PSA be used for?
Full Answer
What is PAYE Settlement Agreement (PSA)?
A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees.
What is a settlement agreement?
Everything you need to know A settlement agreement is a legal contract between you and your employer formed on the basis that your employer promises to pay you a sum of money owed for tax and National Insurance contributions relating to minor, irregular or impracticable expenses and benefits that have been provided to employees.
How do I get a PAYE Settlement Agreement?
In order to get a PAYE Settlement agreement, you will need to write to HM Revenue and Customs Business Tax and Customs outlining the expenses and benefits you want the PAYE Settlement Agreement to cover – it’s important that these are outlined clearly.
How does an employer settle a PSA with HMRC?
By entering into this formal arrangement, an employer can settle any tax due on expenses and benefits provided to employees by way of an annual submission and payment to HM Revenue & Customs (HMRC). Items that are included in a PSA are not then required to be reported separately, for example via the payroll or in the employee’s P11D.
What is a PAYE settlement agreement?
A PAYE Settlement Agreement (PSA) can be a very effective way to give a benefit to an employee without the employee having to pay tax and national insurance on that benefit. Instead, the employer shoulders the cost.
Is a PAYE settlement agreement effective?
Used appropriately PAYE Settlement Agreements can be an efficient and effective way of rewarding staff for those one-off occasions. Just be aware of the tax status of employees when calculating the tax and NICs due.
What is considered a minor in PAYE?
The expenses or benefits to be included must be “minor”, “irregular” or “impracticable” to operate PAYE on the item: Minor – there is no pre-determined limit to the value but it might include items such as small gifts not covered by the trivial benefits rules.
Can you make a voluntary disclosure and settlement for items you would have otherwise included in a PSA?
If you don’t already have a PSA in place and miss this deadline, it is possible to make a voluntary disclosure and settlement for items you would have otherwise included in a PSA. However, in certain circumstances HMRC may impose penalties and will charge interest on amounts settled in this way.
What about filing and tax payment deadlines?
An employer will be required to submit a calculation to HMRC annually of the income tax and Class 1B NICs due. HMRC will review the calculation and confirm agreement if the basic calculation appears to be in order.
How do we get a PSA?
A PSA is a formal arrangement, applied for in writing, between employer and HMRC. The deadline to apply for a PSA is 5 July following the end of the tax year to which it relates. However, the PSA cannot apply retrospectively to expenses or benefits that should have had PAYE applied to them. Best practice is therefore to agree a PSA prior to the start of the tax year, to ensure all the items that you intend to include can be included from the outset.
