PAYE settlement agreements
Produced in partnership with Vaneeta Khurana of EY LLP
PAYE settlement agreements

The following Tax guidance note Produced in partnership with Vaneeta Khurana of EY LLP provides comprehensive and up to date legal information covering:

  • PAYE settlement agreements
  • What can be included in a PSA?
  • Effect of a PSA
  • Procedure
  • Records
  • Tax calculation
  • Late payment and overpayment
  • Irregularities
  • Third-party awards
  • Employer cessations and successions
  • more

A PAYE settlement agreement (PSA) is a voluntary arrangement which allows an employer to settle, in a single annual payment, the income tax and National Insurance contributions (NICs) liability of their employees on certain minor and irregular expenses and benefits.

A PSA does not remove an employer’s requirements to operate PAYE on general earnings and appropriately report expenses and benefits.

What can be included in a PSA?

HMRC will agree to a PSA where amounts or benefits are made available to employees and the amounts or benefits are:

  1. minor

  2. irregular, or

  3. impracticable to tax through the payroll, expenses or benefits systems

Minor

There is no definition of what qualifies as minor in monetary terms. HMRC provides a list for illustrative purposes:

  1. incentive awards

  2. reimbursement of late night taxi fares where the conditions for tax exemption are not satisfied

  3. personal incidental expenses in excess of the daily tax-free limit

  4. a present for an employee in hospital

  5. staff entertainment, for example a ticket to a sporting event

  6. use of a pool car where the conditions for tax exemption are not satisfied

  7. subscriptions to gyms, sports clubs etc

  8. telephone bills, or

  9. gift vouchers and small gifts

Irregular

There is no legislative definition of irregular. It will be relevant to consider the nature of the item being provided, how often it is provided to a single employee,