PAYE Settlement Agreements (PSAs)

Benefits in kind that are provided to employees will usually result in an income tax charge on the employee and a Class 1A national insurance (NI) charge on the employer.

However, the income tax charge on the employee can be avoided by the employer entering into a PAYE settlement agreement (PSA) with HMRC, whereby the employer pays the income tax on the employee’s behalf.

Not all benefits provided may be dealt with this way. The benefits must be minor, irregular or impracticable. Impracticable means that the expenses and benefits are difficult to place a value on or divide amongst individual employees. An example would be the cost of a staff party where the £150 per head limit has been exceeded.

From 6 April 2023 there is a new online service available from HMRC for employers and their agents to apply for a PSA. Employers and agents can also use the online service to amend or cancel an existing PSA.  To support these changes, HMRC has updated its guidance on PSAs to include reference to the new online tools.

What can be included in the PSA depends on when you apply.  If you applied for a PSA before the start of a tax year, you can include any expenses and benefits contained in the agreement. If you applied for a PSA part way through the tax year, you may need to report some items separately on P11d forms.

Employers must pay any tax and class 1B NIC owed under a PSA by 22 October after the tax year that the PSA applies to (19 October if paying by cheque).

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.