What is a PAYE Settlement agreement, and when do I need to pay it?

A PAYE Settlement Agreement (PSA) is an agreement with HMRC which allows you to make a one off payment annually, to cover all Tax and National Insurance due on; Minor, Irregular, Impractical expenses or employee benefits.

Therefore you do not need to;

  • Put them through your payroll
  • Include them in your year end P11D forms
  • Pay Class 1A National Insurance because you pay Class 1B as part of your PSA

What are classed as Minor Expenses?

Minor Expenses are;

  • Incentives such as long service rewards
  • Phone Bills
  • Token gifts and vouchers
  • Staff entertainment
  • Non business expenses – overnight stays

What are Irregular Expenses?

Irregular expenses are expenses which do not occur on a regular basis ie per month such as;

  • Relocation expenses above £8k
  • Overseas conferences
  • Expenses for a spouse to accompany your employee overseas
  • Company holiday home

What are Impractical Expenses?

Impractical Expenses are benefits which are difficult to put a value on, for example;

  • Shared company cars
  • Personal Care such as Hairdressers

What can you NOT include?

You can’t include high value benefits such as;

  • Company cars
  • Cash payments
  • Bonuses
  • Round Sum Allowances
  • Beneficial loans

If you apply after the start of the tax year there are certain restrictions on what can be included.

Application and payments

  • The deadline is 5th July following the first tax year.
  • Payment must be made by 22nd October
  • You may be fined or charged interest if you do not pay or make a late payment

HMRC have informed us that there has been a glitch with their system meaning that some businesses may not have received a payslip from them confirming the amount which is owed for the next tax year.

If this is the case and you are not in receipt of the payslip, you are required to pay the tax and National Insurance that was calculated and submitted to the HMRC. The funds should be submitted in time for the deadline of 22nd October. DO NOT wait for the payslip as this will result in charges being made for missing the payment deadline. Ensure that when you make the payment that you include your PSA reference number, which is shown on their PSA confirmation letter and not your PAYE Accounts Office reference number. If you do this payment will not be allocated correctly. If you are unable to locate your PSA reference number please call 0300‌‌ 322 7077.

Payment Deadlines

Same or next day payments:

  • Online/telephone banking
  • CHAPS
  • Debit/Corporate credit card
  • Bank/Building Society

3 working days or more;

  • BACS
  • Direct Debit (if already set up), 5 working days if it’s a new DD
  • Cheque via post

Further information can be found on GOV.UK.

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