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 be defined as one of the following;

• 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 new versions of the PSA1 for England & Northern Ireland, Scotland and Wales have been released. 

The deadline for applying for a PSA for 2021-22 expires on 5 July 2022. If there have been no changes since the last PSA was agreed, all an employer needs to do is sign the new agreement and return to HMRC by 6 July 2022. If there are additional items to add to a PSA, HMRC usually issues a new P626. 

The deadline for electronic payment for a PSA for the year ended on 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.