PAYE Settlement Agreements (PSAs)
For many employers, managing one-off, irregular, or minor benefits given to employees can create a burden. Traditional payroll methods or individual reporting through P11Ds may be inefficient for these types of expenses. PAYE Settlement Agreements (PSAs) offer a practical way to manage this by allowing employers to pay the income tax and National Insurance on behalf of employees for specific taxable benefits.
At My Tax Consultants, we assist UK businesses with the full administration and compliance of PAYE Settlement Agreements. From setting up PSA applications to advising on employee benefit reporting, calculating tax on trivial benefits, and ensuring accurate submissions to HMRC, we provide clarity and efficiency throughout the process.
What is a PAYE Settlement Agreement?
A PAYE Settlement Agreement is an arrangement with HMRC that allows an employer to make one annual payment to cover the tax and National Insurance Contributions (NICs) on certain benefits and expenses provided to employees. These agreements are used for items that are:
- Irregular: provided occasionally or unexpectedly (e.g. a celebration dinner or reward)
- Impractical to include in payroll: where calculating the individual tax would be complex
- Minor in value: small items that would otherwise require administrative input out of proportion to their worth
By taking on the tax liability, the employer removes the burden from the employee and keeps payroll cleaner. The employer submits the PSA details annually and pays a grossed-up amount of income tax and Class 1B NICs to HMRC.
When and Why to Use a PSA
A PAYE Settlement Agreement is appropriate when the employer wishes to manage tax liabilities centrally. Common examples of items included in a PSA:
- Staff events (such as annual dinners or awards ceremonies) that don’t qualify for exemptions
- Gift vouchers, retail gift cards, or small non-cash gifts outside the trivial benefit allowance
- Expenses paid for staff entertainment
- Incentives for non-performance-based recognition
- Relocation expenses above exemption limits
- Expenses not reported under standard expense procedures
Without a PSA, each benefit or expense must be reported individually—either through payroll or on a P11D—and employees may be taxed directly. A PSA simplifies this by consolidating all eligible items into a single calculation.
PSA Applications: Getting iIt Right from the Start
To use a PAYE Settlement Agreement, an employer must first apply to HMRC and obtain approval. The agreement must be in place before 6 July following the tax year in which the expenses or benefits were provided.
At My Tax Consultants, we help employers identify which expenses qualify, draft the application accurately, and submit it on time. Missed deadlines can lead to penalties, interest, or disallowed benefits—our team helps avoid that.
Trivial Benefits vs PSA Items
Understanding the difference between trivial benefits and PSA items is essential for keeping your tax liabilities accurate.
Trivial benefits—such as low-value gifts under £50 that meet HMRC’s exemption criteria—do not need to be reported or included in a PSA. However, anything that exceeds those thresholds, involves cash or vouchers, or doesn’t meet the conditions of exemption must be included in the PSA.
We assist in identifying borderline cases to help you avoid over-reporting and manage your total tax on trivial benefits efficiently.
Annual Reporting and Tax Calculations
Once your PSA is approved and the relevant tax year ends, the next step is to submit an annual calculation to HMRC. This includes:
- Categorising each benefit and expense
- Grossing-up the value to reflect the tax due
- Applying correct rates of tax and NICs
- Submitting the PSA report to HMRC by 31 July following the tax year
The total liability is then payable by 22 October (or 19 October if paying by cheque). Our role is to carry out this process on your behalf, ensuring no errors, misclassifications, or delays.
Compliance, Reporting & Audit Defence
Incorrect reporting or failure to apply PSA rules can lead to HMRC audits or financial penalties. We maintain thorough documentation of all PSA-related items, and help you establish an audit-ready compliance record.
Our PSA service covers:
- PSA application drafting and submission
- Advice on qualifying benefits
- Classification of expenses for employee benefit reporting
- PSA tax liability calculations and gross-up
- Liaison with HMRC
- Submission of annual PSA return
We also assist employers facing HMRC queries or reviews related to previously submitted PSAs.
Why Choose My Tax Consultants?
Understanding the rules around PSAs, employee benefit reporting, and trivial benefits is essential for keeping your business compliant and your employees unaffected by unexpected tax charges. We help reduce admin work, improve cost transparency, and eliminate unnecessary reporting.
Whether you are new to PAYE Settlement Agreements or have an existing arrangement that needs attention, we offer reliable guidance and full-service support to keep your business compliant and efficient.
Ready to simplify PAYE Settlement Agreements?
Get in touch with My Tax Consultants today to handle your PSA applications, manage your employee benefit reporting, and reduce unnecessary costs related to tax on trivial benefits. We’ll help you meet HMRC requirements while keeping your employees free from extra tax burdens.
