PAYE Settlement Agreements

PAYE Settlement Agreements

Overview of PAYE Settlement Agreements

This page provides an overview of PAYE settlement agreements and is based on information obtained from the HMRC website https://www.gov.uk/paye-settlement-agreements.

PAYE Settlement Agreements

A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for your employees.

If you get a PSA for these items you won’t need to:

  • put them through your payroll to work out tax and National Insurance
  • include them in your end-of-year P11D forms
  • pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead)

Some employee expenses are covered by exemptions (which have replaced dispensations). This means you won’t have to include them in your end-of-year reports.

What is included

The expenses or benefits you include in a PAYE Settlement Agreement (PSA) must be one of the following:

  • minor, for example a small birthday present
  • irregular, for example one-off relocation expenses over £8,000 (these are tax-free below £8,000)
  • impracticable (difficult to work out the value of or divide up between individual employees), for example shared cars or taxi journeys

You cannot include high-value benefits like company cars or cash payments such as bonusesround sum allowances or beneficial loans in a PSA.

If you apply after the start of the tax year, there are some restrictions on what you can include.

How to obtain a PSA

  1. Write to HM Revenue and Customs (HMRC) Local Compliance describing the expenses and benefits you want the PAYE Settlement Agreement (PSA) to cover.
  2. Once they’ve agreed on what can be included, they’ll send you 2 draft copies of form P626. Sign and return both copies. HMRC will authorise your request and send back a form – this is your PSA.
  3. You’ll need to report anything that can’t be included separately using form P11D.
  4. Work out how much you’ll need to pay – use form PSA1 to help you calculate the overall amount you must pay.
  5. Send the completed form to HMRC as soon as possible. They’ll get in touch with you between 6 July and 19 October following the tax year that the PSA covers to confirm the total tax and National Insurance you need to pay.

Contact the HMRC employer helpline for advice on getting and calculating your PSA.

Renew or change a PSA

You need to renew your PSA every year.

HMRC will send you a new PSA before the start of each tax year. If there have been no changes since your last PSA was agreed, all you need to do is sign the new agreement.

To change the items covered by your PSA, send details of the changes to the office that issued your PSA.

You must renew your PSA by 6 July following the end of the tax year it applies to.

Deadlines and payment

If HM Revenue and Customs approves your PAYE Settlement Agreements (PSA) before the start of the tax year, you can include any expenses and benefits contained in the agreement.

If they approve it after the start of the tax year, you might need to report some items separately using form P11D.

After 5 July 2018 you can’t apply for a PSA for the 2017 to 2018 tax year.

If your PSA is approved before 6 April 2018

You must report expenses and benefits provided before the agreement date that you:

  • have already included in your employee’s tax code
  • have included in your employee’s PAYE tax and National Insurance deductions
  • should have included in your employee’s PAYE tax and National Insurance deductions

If your PSA is approved between 6 April 2018 and 5 July 2018

You must report expenses and benefits provided during the 2017 to 2018 tax year that you:

  • have already included in your employee’s tax code
  • have included in your employee’s PAYE tax and National Insurance deductions
  • should have included in your employee’s PAYE tax and National Insurance deductions

When to pay

You must pay any tax and National Insurance owed under a PSA by 22 October after the tax year the PSA applies to (19 October if you pay by post).

Should you require any further information on PAYE Settlement Agreements then please contact Stallion Accountancy Services.

About the author...

George Greer is an experienced ACCA qualified Business Owner with a demonstrated history of working in the accounting industry. He is skilled in Accounts and Finance Management, Budgeting and Business Planning with excellent knowledge of Sage and Xero Products. Strong professional with a BSc focused in Business Computing Systems from City University London.

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