PSAs allow you to make one payment annually to cover tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees.
Minor expenses include:
- Incentive awards, for example for long-service
- Telephone bills
- Small gifts and vouchers
- Staff entertainment, for example a ticket to an event
- Non-business expenses while travelling overnight on business that are over the daily limit of £5 per night for travel within the UK and £10 per night for travel outside of the UK
You will not need to include trivial benefits in your PSA if all of the following apply and nor do you need to pay tax or National Insurance or let HMRC know:
- It cost you £50 or less to provide
- It isn’t cash or a cash voucher
- It isn’t a reward for their work or performance
- If isn’t in the terms of their contract
However, be aware that if you provide trivial benefits as part of a salary sacrifice arrangement they won’t be exempt. They will need reporting on form P11D whichever amount is higher:
- The salary given up
- How much you paid for the trivial benefit
Directors of ‘close’ (a limited company that is run by 5 or fewer shareholders) companies cannot receive trivial benefits worth more than £300 in a tax year.
Irregular benefits and expenses are things that you do not pay at regular intervals as the name suggests, they are also things that employees have no contractual right to receive and include as follows:
- Relocation expenses over £8,000 (tax-free below £8,000)
- The cost of attending overseas conferences
- Expenses of a spouse accompanying an employee abroad
- Use of a company holiday flat
Impracticable expenses and benefits are items that are difficult to place a value on or to divide between employees:
- Staff entertainment (that are nor exempt from tax or National Insurance)
- Shared cars
- Personal care expenses
You cannot include the following in a PSA:
- High-value benefits like company cars
- Cash payments such as
- Round sum allowances
- Beneficial loans
If you get a PSA you will not need to:
- Put them through the payroll to calculate tax and National Insurance
- Include them in your P11D forms
- Pay Class 1A National Insurance on them (you pay Class 1B National Insurance instead)
To get a PSA:
- Write to HMRC Business Tax and Customs describing the expenses and benefits you want the PAYE Settlement Agreement (PSA) to cover.
- Once HMRC have agreed they will send you 2 draft copies of form P626, you will need to sign and return both copies to them. HMRC will them authorise the request and send back a form – this is your PSA.
- Anything that cannot be included must be reported on form P11D unless you payroll your benefits and expenses.
- Use form PSA1 to help you calculate the overall amount you’ll need to pay.
- Send the completed form to HMRC as soon as possible after the end of the tax year.
The deadline for applying for a PSA or making any amendments to an existing PSA is 5 July following the tax year it applies to. If you are adding an item(s) to your PSA then you will receive an appendix to your existing agreement, not a new agreement and will continue until either you or HMRC cancels it.
Further guidance on how to get a PAYE Settlement Agreement (https://www.gov.uk/paye-settlement-agreements is available, alternatively please CONTACT US for more advice.