What is PAYE Settlement Agreements (PSA’s) and when should you use one?

A PAYE Settlement Agreement, otherwise known as a PSA, is an agreement between the employer and HMRC. It enables employers to make one annual payment for tax and National Insurance contributions on certain expenses and benefits via the PSA process, rather than through the annual P11D filing or via payroll. 

The deadline for applying for a PSA is 5 July following the first tax year it applies to. The company makes an annual payment to HMRC usually by 22 October after the tax year the PSA is for, to cover the income tax and National Insurance contributions on the agreed expenses and benefits on behalf of their employees.  In practice, employers often use PSA’s for benefits which they wouldn’t want their employees to pay tax on themselves, in particular for things like staff parties.   

What can be included in a PSA 

Only minor, irregular or impracticable expenses or benefits can be included in a PSA. Each of these categories are defined below: 

Minor benefits and expenses  

• This includes things like small gifts, vouchers, incentive awards.
• For example ‘Employee of the Month’
• There’s also a statutory exemption from tax and NIC for ‘trivial benefits’ costing £50 or less, meaning that there is no need to report qualifying ‘trivial’ benefits on the PSA or the P11D.

Irregular benefits and expenses  

• This relates to things that aren’t paid regularly and are typically things that employees don’t necessarily have a contractual right to 
• Examples of this could be relocation expenses over £8,000, attendance at overseas conferences, or the use of a company holiday flat 

Impracticable benefits and expenses  

• This refers to items or events with no fixed value or a cost that cannot be divided easily between individual employees 
• Examples would be personal care expenses, shared cars or staff entertainment in excess of the £150 exempt amount 

You cannot include wages, high value benefits (i.e. company cars), cash payments (such as bonuses) or beneficial loans in a PSA. 

How to apply for a PSA 

Employers need to submit a request to HMRC by 6 July following the end of the first tax year it applies to. The request needs to describe which benefits and expenses you want the PSA to cover. 

If you apply before the start of the tax year, you can include any expenses and benefits contained in the agreement. If you apply after the start of the tax year, some items might need to be reported separately.   

You can apply online or by post using your usual PAYE reference and contact details. Once reviewed, HMRC will confirm which items can be included, or they will contact you if there are any issues. They will then send 2 copies of the P626 form for signing and returning. The request will then be authorised and HMRC will send you a copy of the agreement. 

Once agreed, the PSA remains active and requires an annual return of benefits each year until it’s terminated. It doesn’t need to be renewed each year.  Employers must calculate the liability annually and submit an online return, along with payment, by 22 October (or 19 October if paying by post). 

How can we help 

Navigating PSA rules can be complex, especially when deciding what qualifies and how to report it correctly. Our team can support you with the preparation, submission, and calculation of your PAYE Settlement Agreement — ensuring you stay compliant and efficient. 

If you need any tailored advice and help getting started, please get in touch with Director, Gail Swinburn (gailswinburn@lubbockfine.co.uk).