PAYE Settlement Agreement (PSA)

Overview

A PAYE Settlement Agreement (PSA) allows employers to settle the Income Tax and National Insurance Contributions (NICs) on certain benefits and expenses provided to employees.

This is particularly useful for items that are difficult to process through payroll or treat as part of normal earnings, such as vouchers or gifts worth more than £50.

Once a PSA is agreed with HMRC:

• The employer does not need to process the item through payroll.
• The item does not need to be reported on a P11D.
• Class 1A NICs are not due at year end.
• Instead, the employer pays Class 1B NICs as part of the PSA.

This simplifies reporting and ensures employees do not face unexpected personal tax charges.

🔗 HMRC: PAYE Settlement Agreements

✅ Deadlines

• PSA annual return must be filed by 22 July following the end of the tax year.
• Payment of tax and NICs under the PSA is due by 22 October.

📊 What Can Be Included?

Expenses or benefits in a PSA must be minor, irregular, or impracticable:

• Minor: Low-value items such as gifts and vouchers not covered by trivial benefits rules.
• Irregular: Benefits that are not contractual and not paid regularly (such as one-off perks that are over £50 in value).
• Impracticable: Costs that are hard to calculate or divide fairly, such as team lunches or staff entertaining not exempt from tax.

🔍 What Cannot Be Included?

Some items are excluded from PSAs:

• Wages, bonuses, and cash payments.
• Round sum allowances.
• Beneficial loans.
• High-value benefits such as company cars.

💡 Note: There is no requirement to include trivial benefits in a PSA.

Example: Tax Payable Under a PSA

💡 Practical Tip

A PSA can simplify reporting by consolidating certain employee benefits into one annual settlement. However, the scope is limited to irregular, or impracticable items, and the cost to the employer can be high (when taking into account the total taxes and associated filing fees), so it should be planned for carefully and used sparingly.