A Paye Settlement Agreement (PSA) is a type of arrangement between employers and HM Revenue and Customs (HMRC). It allows employers to settle the tax and National Insurance contributions (NICs) due on certain types of expenses and benefits provided to their employees.
In other words, a PSA is a way for employers to avoid having to report individual taxable benefits and expenses on employees` P11D forms. Instead, the employer pays a one-time settlement to HMRC, covering all the taxes and NICs due on behalf of their employees.
What expenses and benefits can be covered by a PSA?
Employers can use a PSA to settle the tax and NICs due on the following types of expenses and benefits:
– Minor benefits and expenses: This includes things like staff entertaining, staff parties, and small gifts.
– Personal incidental expenses: This covers costs incurred by employees when on business travel, such as subsistence expenses.
– Fuel for company cars: If an employer pays for fuel used for private use in a company car, they can use a PSA to settle the resulting tax and NICs.
– Living accommodation: If an employer provides living accommodation to employees, they can use a PSA to settle the tax and NICs due.
– Other expenses and benefits: There are a range of other expenses and benefits that can be covered by a PSA, as long as they meet certain conditions set out by HMRC.
How do employers apply for a PSA?
Employers can apply for a PSA by completing an application form and sending it to HMRC. The deadline for applying for a PSA is 6 July following the end of the tax year in question.
When applying for a PSA, employers will need to provide details of the expenses and benefits they want to include, as well as an estimate of the tax and NICs due. Once HMRC has reviewed the application, they will issue a PSA agreement, which sets out the terms and conditions of the arrangement.
What are the advantages of using a PSA?
Using a PSA can offer a number of advantages for employers, including:
– Simplification: By settling the tax and NICs due in one lump sum, employers can avoid having to report individual expenses and benefits on employees` P11D forms, making the process simpler and quicker.
– Certainty: By agreeing a PSA with HMRC, employers can be sure that they have settled all the tax and NICs due on the expenses and benefits covered by the agreement.
– Cost savings: By using a PSA, employers can avoid having to pay Class 1A NICs on the expenses and benefits covered by the agreement, which can result in cost savings.
In conclusion, a Paye Settlement Agreement can be a useful tool for employers looking to simplify the process of reporting expenses and benefits for their employees. By settling the tax and NICs due in one lump sum, employers can save time and money, while also ensuring that they are meeting their obligations to HMRC. As always, it`s important to ensure that any PSA is applied for correctly and meets the conditions set out by HMRC.