A PAYE Settlement Agreement allows an employer to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for their employees. Examples of expenses covered by a PSA include; phone bills, small gifts/vouchers, staff entertainment and incentives. High value benefits such as company cars or cash payments, for example round sum allowances, cannot be included in a PSA.

For the employer this can reduce the burden of administration as they will not need to be processed through payroll for tax and NIC or included in P11D forms. These can also improve relationships with employees as the tax is paid by the employer, particularly appropriate for gifts and rewards.

PSAs need to be in place by 6 July following the fiscal year in which the benefits were provided and employers can apply online or by post.  The tax and Class 1B National Insurance due will be payable to HMRC by 19 October following the fiscal year to which they relate, or 22 October if paid electronically. Employers will not need to pay Class 1A National Insurance.

Once granted, the PSA will remain in place for future years unless cancelled or changed by either HMRC or the employer.  Every year, employers must submit a calculation to HMRC of income tax and Class 1B NIC due. PSAs should be regularly reviewed to ensure they are compliant with existing tax legislation.

Contact: Julie Hamilton Tax Manager E: juliehamilton@bakertillymm.co.uk T: 028 9032 3466 to find out more about applying for a PSA or to review your existing PSA.