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PAYE Settlement Agreement Explained

Having a PAYE Settlement Agreement (PSA) in place simplifies the reporting process for employers. Find out how PSAs allow annual payments to HMRC on some types of employee expenses and benefits. So, the question is 'what is a PSA agreement'? Check what expenses to include in a PAYE Settlement Agreement and which ones you must not.

PSA HMRC: PAYE Settlement Agreements are effective ways of reporting some expense payments by removing the need to inform employees.

Making one annual payment covers employee tax and National Insurance due on minor, irregular, or impracticable expenses or benefits.

Employers with a PSA in place for standard items would be able to avoid:

  • Putting them through payroll to calculate tax and National Insurance.
  • Including them in end-of-year P11D forms.
  • Paying Class 1A National Insurance on them at the end of the tax year. You would pay Class 1B National Insurance as part of the PSA instead.

Note: HMRC exemptions have replaced dispensations and now cover some types of employee expenses. So, you would have no need to include them in end-of-year reports.

HM Revenue and Customs simplified the process even further. The existence of a PSA will continue by automatic process and apply to each future tax year.

As a result, there would be no need to renew the PSA in most cases – unless it was no longer required or needed amending.

There are several advantages of putting a PAYE Settlement Agreement in place. It makes the reporting procedure more efficient for employers. The system can also help with employee reward and engagement.

Employees can avoid some tax treatment and it reduces the impact of National Insurance contributions. PSAs also help to ensure that compliance with HMRC PAYE reporting is better managed.

Note: Following devolution, different income tax rates apply to Scottish taxpayers. So, employers need to factor it into PSA computations before submitting a return.


Expenses Included in a PSA HMRC

PAYE Settlement Agreements can include standard types of minor, irregular, and impracticable ‘benefits in kind’ and expenses. Check what can be included in a PAYE Settlement Agreement – and what cannot!

Getting a PAYE Settlement Agreement

The section has key information on how to get a PAYE Settlement Agreement for employers. Use the help guide to find out how to renew a PSA for the current tax year.

Paying a PAYE Settlement Agreement

The help guide explains how to pay a PAYE Settlement Agreement (PSA), the different payment methods available, reference numbers, and relevant bank details.

PSA Deadlines and Payments

HM Revenue and Customs agreement dates determine the deadline for PAYE Settlement Agreement (PSA). Review the deadlines and when to pay to avoid penalties for late a payment.

Changing or Cancelling a PAYE

You can change the items covered under a PAYE Settlement Agreement. Even so, you would need to send the details of any changes to the same office that issued it.

Pay As You Earn (PAYE) Settlement Agreements in United Kingdom