COMPLIANCE
PSAs: why the deadlines can be confusing
Paras Shah, manager, and Caroline Harwood, partner, in the employment taxes team at BDO LLP, outline the challenges of navigating pay as you earn (PAYE) settlement agreements (PSAs)
U nderstanding the intricacies of the UK tax system can be a daunting task, especially when it comes to PSAs. While PSAs can be a valuable tool for employers, the technicalities and deadlines involved can often be challenging to navigate. This article aims to provide a comprehensive, practical guide to understanding PSAs, their benefits and how to effectively manage the associated deadlines. Understanding PSAs A PSA is an agreement which exists between an employer and HM Revenue and Customs (HMRC), allowing the employer to make a single annual payment to cover all the tax (on a grossed-up basis), along with a corresponding class 1B National Insurance contributions (NICs) charge that is due on (non-cash) benefits provided to employees that are: l minor l irregular l impracticable or difficult to apportion the benefit per employee. If one of the above conditions is met, then in theory, an item can be included on the PSA. PSAs are enduring agreements unless they are revoked by HMRC or cancelled by the employer. A PSA can be amended to include additional qualifying benefits or exclude benefits that are no longer provided.
Although, in the latter case, most employers tend to continue to include them and, if necessary, report a zero benefit. For a tax year to be covered by a PSA, the application must be made to HMRC by 5 July following the end of the relevant tax year. Any amendments to a PSA must be made by 6 July following the end of the relevant tax year. HMRC now asks that applications and amendments are made online through its dedicated online service. The form used for the agreement is officially known as Form P626. With new applications, it will be sent to the employer for signature, that then needs to send it to HMRC for it to be signed by them and returned to the employer. The amendment process used to be similarly cumbersome but now HMRC will send an updated letter with the amended PSA attached. What items can a PSA cover? A list of common items includes non-exempt, staff entertaining, staff gifts, long service awards, staff vouchers, relocation expenses, staff vouchers and non-trivial benefits. This list isn’t exhaustive and providing one of the three conditions (mentioned earlier) are met, then HMRC should be able to agree an item for inclusion within the PSA. Cash payments and round sum allowances would not normally be covered and should be subject to PAYE and NIC
through the payroll. Regular and / or large benefits such as private medical insurance and company cars can’t be covered and would normally be reported on P11Ds. So what are the deadlines? PSAs will usually state that the PAYE settlement calculation must be provided to HMRC by 31 July following the end of the relevant tax year that it relates to. This is where it can get quite confusing for many employers. While 31 July following the tax year end is a contractual deadline, it’s not a statutory one – because there is no statutory deadline. There is an effective deadline of 19 or 22 October following the end of the relevant tax year, which is the date by which payment of the PSA liability must be made. This is one of the many anomalies in the tax world. The government could easily implement a statutory deadline if it wanted to. While technically, HMRC can revoke a PSA if the calculation has not been sent in by 31 July following the end of the relevant tax year, in practice, I haven’t seen this happen. Usually, HMRC is happy to accept PAYE settlement calculations up until the payment deadline, and it’s only after this that it consider sending what is called a “Regulation 110 Determination” to the employer. This is a calculation of HMRC’s best estimate of the
| Professional in Payroll, Pensions and Reward | September 2024 | Issue 103 18
Made with FlippingBook - Online magazine maker