Pay As You Earn (PAYE) is a method of income tax deduction by HM Revenue and Customs (HMRC) in the UK. For employers, an end-of-year process called a Paye Settlement Agreement (PSA) helps them to settle any tax and National Insurance Contributions (NICs) liabilities for their employees without having to include them on their employees` P60s. A PSA is a written agreement between an employer and HMRC and is usually used to report expenses or benefits that have not been taxed through payroll during the tax year.
How does a PSA work?
Prior to the end of each tax year, an employer can request a PSA from HMRC if they have non-payroll expenses or benefits to report. The PSA must be completed and submitted to HMRC by the 6th July each year. HMRC will then issue a calculation of the amount due for payment under the PSA. The employer pays the tax and NICs due to HMRC by 22nd October if paying by cheque or 19th October if paying electronically.
Employers can use the PSA for expenses and benefits that they provide to their employees that are not covered by a PAYE settlement agreement. HMRC will consider making a PSA for expenses or benefits paid for by the employer where the taxable benefit would be difficult to calculate or include in the payroll process, or where the number of employees involved is small. Some examples of expenses and benefits that can be included in a PSA are:
– Staff entertainment and parties
– Minor staff gifts and benefits in kind
– Work-related travel expenses
– Non-business travel expenses
– The provision of work-related assets or equipment
The benefits of a PSA are that it allows the employer to settle all their tax and NICs liability in one payment, rather than making numerous payments throughout the year. It also reduces the administrative burden for both the employer and HMRC. The PSA is particularly useful for small businesses who may not have the resources to manage PAYE throughout the year.
Conclusion
A PSA is a useful tool for employers who have non-payroll expenses or benefits to report. It is a simple way to settle tax and NICs liabilities in one payment, rather than making multiple payments throughout the year. If you are unsure about whether you need a PSA or how to request one, contact HMRC for guidance.