A PAYE Settlement Agreement (PSA) allows employers to cover the tax and National Insurance contributions (NICs) on certain types of employee benefits. 

This eases the administrative burden and offers employees hassle-free perks.  

By simplifying how you handle minor, irregular, or impractical expenses, PSAs make tax liabilities less of a headache for both employers and employees. 

Instead of needing to calculate and report the tax on each individual benefit given to employees, a PSA lets employers make a single annual payment.  

This is especially useful for handling expenses that don’t fit neatly into typical payroll processes or P11D forms, such as small gifts, one-off events, or shared costs that are difficult to allocate to individual employees. 

How a PSA benefits your business 

A PSA offers a simple and efficient way to manage the tax obligations associated with providing minor benefits to your employees. Some key benefits include: 

• Less administrative work – By including certain benefits in a PSA, there’s no need to report them on P11D forms or process them through payroll.  

• Improved employee satisfaction – Covering the tax on small perks means your employees get the full value of those benefits without unexpected tax liabilities.  

• One-off payment simplicity – With a PSA, businesses make just one annual payment to cover all agreed expenses, reducing the risk of errors and simplifying what can otherwise be a complex process. 

Examples of PSA use 

There are various scenarios in which a PSA can prove to be particularly beneficial: 

• Seasonal gifts and parties – A PSA is a great way to simplify tax on seasonal gifts like bottles of wine or small hampers, as well as holiday parties or events. Instead of calculating individual employee tax implications, the PSA covers it all in one go. 

• Team-building events – Activities that reward or motivate employees are an important part of building a cohesive team. Using a PSA to handle the tax aspects of a team-building day or away day removes the challenge of individual tax calculations. 

• Employer-provided transport – When offering transport to multiple employees after a late work event, the costs can be impractical to allocate separately. A PSA allows you to pay the tax on the entire cost, reducing complexity. 

PSAs versus other benefit reporting methods 

A key difference between a PSA and other benefit reporting methods, such as using P11D forms or processing through payroll, lies in the ease and efficiency of a PSA.  

With P11Ds, each benefit must be individually recorded and reported, which can be laborious, particularly for minor benefits or occasional perks.  

In contrast, a PSA provides a straightforward way to handle these costs collectively. 

Processing certain benefits through payroll can result in higher NICs for both the business and employees.  

PSAs can offer a more efficient approach, particularly for low-value benefits that don’t warrant the administrative burden of other methods. 

Applying for a PSA 

To set up a PSA, businesses need to contact HM Revenue and Customs (HMRC) to arrange the agreement.  

Applications can be made either online or by post and must be submitted by 5 July following the end of the tax year.  

Once the PSA is in place, businesses must make the payment to HMRC by the applicable deadline: 

• 19 October 2024 – Deadline for PSA payments by cheque 

• 22 October 2024 – Deadline for PSA payments by electronic methods 

Once you have a PSA, it needs to be reviewed annually, with any necessary changes communicated to HMRC to ensure all expenses and benefits are correctly covered. 

Is a PSA right for your business? 

Whether or not to use a PSA depends on the nature and frequency of the benefits you offer.  

PSAs are ideal for smaller, harder-to-allocate costs but aren’t suitable for recurring or high-value benefits like company cars or health insurance, which should be reported through traditional methods. 

If you’re considering a PSA and want to understand how it could work for your business, we can help.  

Our team is here to guide you through the application process and ensure you maximise the value of the benefits you provide while keeping things simple and efficient.  

Get in touch with us today to learn more.