PAYE Settlement Agreements
Overview
A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for your employees.
If you get a PSA for these items you won’t need to:
- put them through your payroll to work out tax and National Insurance
- include them in your end-of-year forms P9D and P11D
- pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead)
For non-taxable expenses and benefits, you can get a dispensation - you won’t have to report or pay anything to HMRC.
What's included
The expenses or benefits you include in a PAYE Settlement Agreement (PSA) must be one of the following:
- minor, eg a small birthday present
- irregular, eg one-off relocation expenses over £8,000 (these are tax-free below £8,000)
- impracticable (difficult to work out the value of or divide up between individual employees), eg shared cars or taxi journeys
You can’t include high-value benefits like company cars, or cash payments such as bonuses, round sum allowances or beneficial loans in a PSA.
If you apply after the start of the tax year, there are some restrictions on what you can include.
How to get a PSA
Write to HM Revenue and Customs (HMRC) Local Compliance describing the expenses and benefits you want the PAYE Settlement Agreement (PSA) to cover.
Once they’ve agreed on what can be included, they’ll authorise your request and send you a signed form P626 - this is your PSA.
You’ll need to report anything that can’t be included separately, using form P9D or P11D.
Work out how much you’ll need to pay - follow the instructions on form PSA1 for each item, then add up the total tax and National Insurance in columns H and I. You can also fill in form PSA1 using HMRC’s Basic PAYE Tools.
Send the completed form to HMRC as soon as possible. They’ll get in touch with you between 6 July and 19 October following the tax year that the PSA covers to confirm the total tax and National Insurance you need to pay.
You’ll need to give an agent a signed letter of authority to make a PSA on your behalf if they don’t have authorisation to do so.
Local Compliance
Individuals and Public Bodies
S0794
Newcastle
NE98 1ZZ
Contact the HMRC employer helpline for advice on getting and calculating your PSA.
Renew or change a PSA
You need to renew your PSA every year.
HMRC will send you a new PSA before the start of each tax year. If there have been no changes since your last PSA was agreed, all you need to do is sign the new agreement.
To change the items covered by your PSA, send details of the changes to the office that issued your PSA.
You must renew your PSA by 6 July following the end of the tax year it applies to.
| Tax year for your PSA | Deadline |
|---|---|
| 2014 to 2015 | 6 July 2015 |
| 2015 to 2016 | 6 July 2016 |
| 2016 to 2017 | 6 July 2017 |
Deadlines and payment
If HM Revenue and Customs (HMRC) approves your PAYE Settlement Agreement (PSA) before the start of the tax year, you can include any expenses and benefits contained in the agreement.
If they approve it after the start of the tax year, you might need to report some items separately using form P9D or P11D.
For example, the table below shows what you need to report separately for tax year 2015 to 2016.
| When your PSA is approved | Items you need to report separately |
|---|---|
| Up to 5 April 2016 | Items provided before the agreement date that you’ve already included in your employee’s tax code, or deducted (or should have deducted) PAYE tax on |
| Between 6 April 2016 and 6 July 2016 | Items provided during the tax year that you’ve already included in your employee’s tax code, or deducted (or should have deducted) PAYE tax on |
| After 6 July 2016 | You can’t apply for a PSA for tax year 2015 to 2016 |
When to pay
You must pay any tax and National Insurance owed under a PSA by 22 October after the tax year the PSA applies to (19 October if you pay by post).
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