PAYE settlement agreements

A PAYE Settlement Agreement (PSA) allows employers to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for their employees.

The expenses or benefits included in a PSA must belong to one of the following categories;

• minor – e.g., a small birthday present
• irregular – e.g., one-off relocation expenses over £8,000 (these are tax-free below £8,000)
• impracticable (difficult to work out the value of or divide up between individual employees) – e.g., shared cars or taxi journeys.

Employers that are required to notify HMRC of the value of items included in a PAYE settlement agreement (PSA) must do so using form PSA1. The deadline for applying for a PSA for 2021-22 is 5 July 2022.

A PSA agreement will continue until either the employer or HMRC cancels the agreement or if changes are required. Employers do not need to renew the PSA each tax year.

The deadline for an electronic payment for a PSA for the year ended 5 April 2022 – to clear into HMRC’s bank account – is 22 October 2022. Employers that pay by cheque must ensure that the payment reaches HMRC’s Accounts Office by 19 October 2022.  There may be interest and / or a late payment penalty due where the payment is made late.