PAYE settlement agreements for 2023/24

If you provide your employees with benefits, you will have just dealt with your HMRC reporting requirements for the year. It may be that in collating the data for the returns, there were expenses that you reported which you would ultimately have liked to have borne the tax cost of, as the employer.

This is where a PAYE Settlement Agreement, or a PSA for short, could be helpful. In this blog, we briefly highlight some of the benefits of having a PSA in place, how they work and what they can offer.

What is a PAYE Settlement Agreement?

A PAYE Settlement Agreement is a contractual arrangement between an employer and HMRC.

Having a PSA in place with HMRC allows an employer to settle the tax and National Insurance liabilities of some benefits provided to employees. These benefits settled in the PSA will not be reportable on a form P11D.

This means the agreement comes in particularly handy when taxable gifts are provided.

Employers can apply for a PAYE Settlement Agreement if they provide taxable benefits or expenses to their employees.

What benefits are included on a PSA?

To include a benefit on a PSA, it must be either minor, irregular or impractical.

HMRC consider a minor benefit to be something like a small gift (that’s not otherwise exempt from tax).

Irregular benefits are things that are not paid in regular intervals over the tax year. These could be things like the cost of attending overseas conferences or relocation expenses over the £8,000 tax-free allowance.

Impractical expenses and benefits are things that are difficult to place a value on or divide between employees. An example of these benefits would be staff entertainment (that’s not already exempt), where one cost is incurred in respect of multiple employees.

However, not all benefits are eligible for inclusion in a PSA and therefore, when an application is made to HMRC, the types of expenses to be covered need to be disclosed.

How to apply for a PSA

To apply for a PAYE Settlement Agreement, employers need to submit a request to HMRC by 6 July following the end of the tax year. The agreement made with HMRC will remain active and requires an annual return of benefits each year (which can be nil) until the agreement is terminated.

The annual calculation will need to be submitted to HMRC by 31 July each year. This can be done via your Government Gateway, and HMRC will ‘work out’ the tax and NIC liabilities based on the cost of the benefit provided.

If an employer has favoured reporting benefits on a PAYE Settlement Agreement, a form P11D is not needed for the employee in respect of that particular benefit. This is because the  employer is settling the liability on behalf of the employee. If other benefits are provided, such as a company car, this will need to be reported to HMRC on the Forms P11D/P11D(b), as usual.

Need help?

If you need any assistance in assessing whether you need a PSA, making an application to HMRC or undertaking your annual calculation, please let your usual contact know as we would be happy to help. You can find contact details on the Our People section of the website, or email enquiry@larking-gowen.co.uk.

Tessa Brown