PAYE Settlement Agreement (PSA)
PAYE Settlement Agreements allow businesses to settle the tax and national insurance liabilities otherwise suffered by their employees, when provided with certain benefits. Some of the common benefits covered under a PSA are gift vouchers and staff entertaining.
The existing process to apply for a PSA is lengthy and many steps are involved. HMRC have acknowledged this and are currently consulting on simplifying the process.
The current process is for the employer (or their agent) to apply to HMRC for an agreement every year. The paper agreement is then signed by HMRC and the employer. Many PSAs are not applied for until after the end of the tax year in question, because for most employers it is unlikely that they will be able to foresee what benefits will be provided in the tax year.
HMRC have agreed that asking the employer to apply year on year is overly burdensome and could lead to delays in the system with employers rushing to get the agreements in place by the deadline (6 July following the end of the tax year). By removing this step, this would provide simplification to the PSA process. Employers would instead then just need to assess whether the benefits are eligible for inclusion in a PSA by checking the guidance and legislation.
It has also been proposed that HMRC should consider a digital solution to the PSA process, by way of an online return instead of a paper one. HMRC agrees that this could eliminate frequent manual or processing errors by HMRC. This is in line with the government’s plans to “Make Tax Digital”.
The government is content with an annual return as it has been since PSAs were created, but is asking for opinions on whether it should be aligned with PAYE reporting.
HMRC are also considering whether to align the submission and payment deadlines with those of the P11D process. It has been suggested that the calculation submission deadline be 6 July after the tax year, and the payment deadline 19/22 July after the tax year. Currently the tax payable under a PSA is not due until 19 October following the end of the tax year
The government has agreed with comments that more clarity is needed on what items are eligible to be included in a PSA, but does not want to produce a strict list as they want a PSA to remain flexible. Many items will no longer need to be covered by a PSA, particularly if the item is regarded as a minor item, as this may now be covered by the new trivial benefit rules.
The consultation is due to end on 18 October 2016.
If you think you may need to put a PSA in place, or have any queries on the current process,please get in touch