If you employ staff, you will know that managing the payroll can be a time-consuming task. This can become even more complicated when tax and National Insurance for your employees is due on minor, irregular or impracticable expenses or benefits. This is where a PAYE Settlement Agreement (PSA) comes in.
Here, we provide our guide to what a PSA is, what it covers and how to get one.
What is a PAYE Settlement Agreement (PSA)?
A PSA allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses of benefits for your employees. This includes:
Minor expenses and benefits, such as:
- Incentive awards e.g. long service
- Telephone bills
- Small gifts and vouchers
- Staff entertainment e.g. a ticket to an event
- Non-business expenses while travelling overnight on business that are over the daily limit
Irregular expenses and benefits, such as:
- Relocation expenses over £8,000 (these are tax-free below £8,000)
- The cost of attending overseas conferences
- Expenses of a spouse accompanying an employee abroad
- Use of a company holiday flat
Impracticable expenses and benefits, such as:
- Staff entertainment that is not exempt from tax or National Insurance
- Shared cars
- Personal care expenses e.g. hairdressing
What isn’t included in a PSA?
You cannot include employees’ wages, high-value benefits like company cars, or cash payments, such as bonuses, round sum allowances or beneficial loans in a PSA. To find out more about what is and isn’t included in a PSA, please visit the government’s website here.
How do I get a PSA for my business?
To get a PSA you will need to write to HM Revenue & Customs (HMRC) Business Tax and Customs describing the expenses and benefits that you want the PSA to cover. Once HMRC has agreed what can be included, you will be sent two draft copies of the form P626. You will need to sign and return both copies. Once HMRC has authorised your request, they will send you back the PSA.
What should I do once I have a PSA?
Once you have your PSA in place, you will need to report anything that cannot be included separately using a form P11D. You do not need to send the P11D if you are paying your employees’ expenses and benefits through your payroll.
You will need to use form PSA1 to help calculate the overall amount you will need to pay under the PSA. If you fail to do this, HMRC will calculate the amount and you will be charged more if this happens.
Once form PSA1 is completed, you should send it to HMRC as soon as possible after the end of the tax year. HMRC will get back in touch with you before 19 October following the tax year that the PSA covers to confirm the total tax and National Insurance you will need to pay.
Managing payroll and organising a PSA can be complex. It is therefore worthwhile getting the advice and assistance of a qualified bookkeeper and payroll expert. Here at AMR Bookkeeping Solutions, we are specialists in managing payroll and assisting with PSAs. You can find out more about how we can help you here.
If you would like to know more about how we can help you with your bookkeeping requirements, please give us a call on +44 (1892) 489668, or get in touch via our online enquiry form.
