Paye Settlement Agreement (Psa)

If you`re an employer in the UK, then you may have heard of a Paye Settlement Agreement (PSA). A PSA is a formal agreement between an employer and HM Revenue and Customs (HMRC) which allows the employer to settle an employee`s tax and national insurance contributions (NIC) for certain expenses and benefits.

Why Use a PSA?

A PSA is a useful tool for employers who provide their staff with non-cash benefits or expenses that are not covered by existing benefits rules, such as staff entertaining or gifts. By agreeing to a PSA, the employer takes on the tax and NIC liabilities for these expenses and benefits, removing the need for employees to declare them on their tax returns.

What Can Be Included in a PSA?

A PSA can cover a wide range of expenses and benefits, including:

– Staff entertainment

– Gifts

– Work-related training

– De minimis benefits

– Minor items of equipment

– Travel and subsistence

However, it`s important to note that if an expense or benefit is already covered by an existing exemption or concession, it cannot be included in the PSA.

How to Apply for a PSA?

To apply for a PSA, an employer needs to complete a PSA application form and send it to HMRC. The deadline for applying for a PSA is 5th July following the end of the tax year to which the agreement applies.

Once HMRC approves the PSA, the employer will receive a confirmation letter detailing the expenses and benefits covered, the tax and NIC rates applicable, and the deadline for paying the settlement amount.

Benefits of Using a PSA?

Using a PSA has several benefits for employers, including:

– Simplifies the tax and NIC reporting process for employees

– Reduces the administrative burden on employers by removing the need to report individual expenses and benefits

– Reduces the risk of error in tax and NIC calculations

– Provides certainty over tax costs for the employer

In Conclusion

A Paye Settlement Agreement is a valuable tool for employers in the UK who provide their staff with non-cash benefits or expenses. By agreeing to a PSA, the employer takes on the tax and NIC liabilities for these expenses and benefits, streamlining the reporting process for employees and reducing the administrative burden on employers. If you`re an employer who provides non-cash benefits or expenses, a PSA may be worth considering to simplify your tax reporting process.