Have You Agreed Your PAYE Settlement Agreement?

A PAYE Settlement Agreement (PSA) allows employers to settle the tax and National Insurance (NI) due on small or irregular taxable expenses or benefits provided to employees rather than the employees suffering the tax on these.

Items that can be included in a PSA must fall into one of the following categories:

• Minor items e.g. a small birthday present
• Irregular items e.g. relocation expenses in excess of the £8,000 tax exemption threshold
• Items it’s impracticable to operate PAYE on or determine a value for P11D purposes e.g. staff entertaining and shared benefits such as shared cars or taxi journeys that are difficult to attribute to individual employees

Examples of items that cannot be included in a PSA would be:

• Cash payments including salary, wages, bonus and other cash payments such as a cash amount for long service (a gift for long service can be included)
• Round-sum allowances
• Large benefits provided regularly to individual employees, such as company cars or beneficial loans

The decision as to whether an item will be included on a PSA should be made by 6 July following the end of the tax year i.e. by 6 July 2018 for the tax year ended 5 April 2018. This is the deadline for the submission of forms P11D to report expenses and benefits taxable on employees and is also the deadline for applying to HMRC for a PSA.  The application should detail the items to be included in the agreement e.g. staff gifts, staff entertainment, etc.

When making the decision to include an item on a PSA, consideration should be given to the fact that the cost to the company is more expensive than the cost would be for the employee because the employer meeting the tax is seen as a further benefit so the amount is ‘grossed up’. The grossed up tax is calculated first based on the employees’ marginal rate and Class 1B employer NI is then calculated on the benefit value plus the grossed up tax.

Once an agreement is in place, the calculation should be prepared and submitted to HMRC and the payment of the tax and NI due made by 19 October (22 October if paying online).

If you require any assistance with applying for a PSA, preparing the calculation or would like advice on items which can be included or on exemptions available, please contact don’t hesitate to contact us.