Paye Settlement Agreement UK: Everything You Need to Know
A Paye Settlement Agreement (PSA) is an agreement between HM Revenue & Customs (HMRC) and an employer, through which the employer agrees to pay the tax and National Insurance contributions (NICs) on particular benefits or expenses provided to employees.
A PSA can be used to simplify the taxation of minor benefits, such as a staff party or gifts provided to employees, which would otherwise be subject to reporting and tax deductions through the PAYE system. It can also be used to cover expenses that are difficult to attribute to individual employees, such as the cost of telephone bills.
How Does a PSA Work?
Under a PSA, the employer calculates and pays the tax and NICs on the benefits and expenses provided to employees, rather than reporting them through the PAYE system and deducting tax and NICs from employees` pay. The employer also makes a single payment to HMRC to cover all the tax and NICs due.
Employers must apply for a PSA before the end of the tax year in which the benefits and expenses are provided. The application must include details of the benefits and expenses to be covered, the number of employees involved, and an estimate of the tax and NICs due.
Once HMRC has approved the PSA, the employer must keep records of the benefits and expenses covered, and the tax and NICs paid, so that they can report them on form P11D(b) at the end of the tax year.
What Are the Benefits of a PSA?
PSAs can offer a number of benefits to employers, including:
– Simplicity: By covering benefits and expenses through a PSA, employers can avoid the need to report and deduct tax and NICs through the PAYE system, which can be time-consuming and complex.
– Cost savings: By paying the tax and NICs due under a PSA, employers can save money on administrative costs, as well as avoiding the need to pay employers` NICs on benefits and expenses.
– Compliance: By using a PSA, employers can ensure that they are meeting their tax and NICs obligations for minor and irregular benefits and expenses, without having to rely on individual employees to report them.
Are There Any Limits to What Can Be Covered by a PSA?
There are some limits to what can be covered by a PSA. For example, a PSA cannot be used to cover benefits and expenses that are part of an employee`s salary or wages, such as a company car or private medical insurance. Similarly, it cannot be used to cover expenses that are reimbursed to employees, such as travel costs or training expenses.
PSAs are primarily intended for minor and irregular benefits and expenses, such as gifts, parties, and small-scale perks. Employers should check the HMRC guidance on PSAs to ensure that the benefits and expenses they wish to cover are eligible.
Conclusion
A PSA can offer a simple and cost-effective way for employers to cover minor and irregular benefits and expenses provided to employees. By paying the tax and NICs due under a PSA, employers can avoid the need to report and deduct tax through the PAYE system, while ensuring compliance with their tax and NICs obligations. If you are considering a PSA for your business, be sure to check the HMRC guidance and seek professional advice if needed.