Date posted: 12th Jun 2024
In simple terms, a PAYE settlement agreement (or PSA for short) is a way of an employer settling tax bills for employees, on amounts which may be deemed to be unfair or inappropriate to ask the employee to pay.
For instance, whilst staff entertaining can be tax free, to a certain extent, if the staff entertaining is not tax free, then the employer needs to declare the amount as a benefit in kind, usually on forms P11D, which will mean that the employee would face a tax bill.
An employee may feel disgruntled at paying a tax bill for say the office party. Therefore, HMRC will allow an employer to enter into a PSA to essentially pay the tax on behalf of the employee.
A PSA may also be useful for other benefits such as:
- Employee long service awards that are not covered by the normal exemptions.
- Employee awards that are not covered by the trivial benefits exemptions.
- Telephone bills.
It cannot be used to settle tax due on:
- A cash bonus.
- Normal earnings.
- Company cars.
An employer does need to apply for a PSA with HMRC and agree what benefits are to be included in the PSA.
An application to HMRC needs to be made by 5 July 2024 for the 2023/24 tax year.
If you have any queries regarding PSA’s, please call our tax experts.
