The Chartered Institute of Payroll Professionals ……………………………………………………………Policy News Journal
The paper details proposals that aim to simplify the process used for agreeing and reporting items in a PSA and asks how the process can be simplified and how guidance can be strengthened to provide clarity for both employers and HMRC.
There is no proposal to broaden the scope of PSAs.
Regulation 106 of The Income Tax (Pay As You Earn) Regulations 2003 require items, that are included within a PSA, to be: Minor, with regards to the cost of the benefit provided or made available; or Irregular, as regards the frequency in which, or the times at which, the sums are paid or the benefit is provided or made available; or Paid in circumstances where deduction of tax by reference to the tax tables is impracticable or in the case of a benefit provided or made available, is shared between employees so that apportionment of the benefit between the employees is impracticable. Currently employers have to apply in writing for a PSA each year, with a paper agreement that must be signed and dated (in duplicate) by both HMRC and the employer, with each retaining a copy for their records. HMRC has identified that the majority of PSA applications are identical each year and often agreed on the same terms. Items commonly seen in a PSA include Christmas parties, working lunches, team building exercises and staff incentive awards. At what time the PSA is agreed also impacts on whether Class 1 NIC becomes payable, in some instances, and this has been recognised as leading to practical difficulties for employees and is an area which will benefit significantly from simplification. Every PSA is currently checked for calculation errors and anomalies before employers pay their PSA liability. These checks ensure that the items returned in the PSA calculation match those agreed in the PSA agreement. Once the PSA calculations have been checked and the value agreed, employers have until 19 (22) October (depending on the method of payment) following the relevant tax year to settle their PSA liability, which includes paying Class 1B NICs. A significant reduction to the administrative burden can be achieved by removing the process of checking the calculation. This in turn presents an opportunity to review the payment deadlines for PSAs, with a view to aligning the payment date of PSAs with other deadlines that exist for reporting of BiKs i.e. 6 July. Calculations
Remove the need for upfront agreement Removing the need for annual agreement will make the process simpler particularly for employers who apply for the same items year on year. It will also remove the anomaly that exists where Class NICs become payable on non-cash vouchers where agreement isn’t achieved before the non-cash vouchers are provided.
Replace the paper return with a digital return - which in turn should reduce the risk of frequent errors made by employers when entering data in the PSA returns.
Handling differences of opinion - where upfront agreement is removed there is a risk of disagreement at a later date by HMRC as to its inclusion. The Government is open to hearing views during consultation but is proposing that a pragmatic approach should be adopted where the employer acts in ‘Good Faith’ with action only being taken where the employer does not act in good faith or where they continue to include items within the PSA when they have been warned by HMRC not to. Removing the requirement for items to be ‘Minor’ – since the introduction of the Trivial Benefit exemption, many items have been removed from a PSA agreement. It is proposed that simplification and additional certainty could be achieved by removing this criteria.
‘Irregular’ should be considered in the context of a tax year and not be repeated within any pattern and additionally not be anything that an employee has a contractual right to.
The ‘Impracticable’ test cannot simply occur as result of limitations within an employer’s software or due to presentational awkwardness.
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