PAYE Settlement Agreement (PSA)

What is a PSA?

A PSA allows employers to settle the tax and NationalInsurance contributions (NICs) on certain benefits and expenses provided to their employees. Typically, these are items that cannot be easily put through the payroll or treated as part of an employee's earnings e.g. vouchers or gifts over £50.

Once a PSA has been granted by HMRC for certain items, there's no need for employers to process those items through the payroll for income tax and Class 1 National Insurance Contributions (NICs). Additionally, they don't need to include those items in P11D returns or pay Class 1A NICs on them at the end of the tax year.

Instead, the employer will pay Class 1B NICs as part of thePSA. This simplifies the reporting and taxation process for both the employer and the employees, as it allows for the collective treatment of certain benefits and expenses under a single agreement. It's important for employers to ensure that they accurately report and pay the Class 1B NICs as required by the terms of the PSA to remain compliant with HMRC regulations.

Deadlines

The deadline for filing a PSA annual return is typically 22 July following the end of the tax year and is due for payment by 22 October. 

What can be included?

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

• Minor - there is no pre-determined limit to the value, but it might include items such as gifts and vouchers that are not covered by the trivial benefits rules.
• Irregular benefits and expenses are things that employees have no contractual right to, which are not paid at expected intervals throughout the tax year. Where benefits and expenses are paid at regular intervals, this could mean that they become ‘custom and practice’, potentially meaning that they could no longer be classed as irregular.
• Impracticable expenses and benefits are those that are difficult to assign a cost to, or to fairly share out between employees e.g.tea and coffee or staff entertainment that is not exempt from tax or NICs.

What is excluded?

• Wages and cash payments, such as bonuses, round sum allowances and beneficial loans cannot be included.
• High value benefits such as company cars.

NB: There is no requirement to include trivial benefits in aPSA.