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a PSA cannot include cash payments or major benefits in kind. Examples of items that cannot be included in a PSA include cash bonuses, low interest loans and company cars. How do we apply for a PSA? As a PSA is a formal arrangement, it must be applied for in writing. The deadline to have agreed a PSA with HMRC is 5 July following the end of the tax year to which it relates. However, the PSA cannot apply retrospectively to expenses or benefits which should have had PAYE applied to them. Best practice is, therefore, to agree a PSA prior to the start of the tax year, to ensure all the items you intend to include are allowed from the outset. Once a PSA is agreed with HMRC, it will remain effective for future tax years until varied or revoked by HMRC or the employer. What tax rate should we use for the PSA? The value of the benefits provided should be taxed within the PSA at the marginal tax “Mistakes can therefore be expensive, especially when the error has arisen over multiple years and across multiple employees”
l enables employees to pay tax on their benefits in real time. However, employers shouldn’t lose sight of the fact they’ll still need to include the value of the payrolled benefits on a form P11D(b) by 6 July following the end of the tax year. This is to enable the class 1A NICs due on those benefits to be declared and paid to HMRC. Employers should carefully consider whether their systems and procedures can support payrolling before registering with HMRC. From 6 April 2023, HMRC will no longer accept new informal payrolling of benefits arrangements. It requires employers with existing informal arrangements in place to have formally registered with HMRC prior to 2023/24 if they want to continue payrolling for that year. What is a PSA? PSAs are widely used by employers to maintain compliance and reduce administration around taxable employee expenses and benefits they don’t want employees to personally pay tax and NICs on. By using a PSA, an employer can settle any tax due on expenses and benefits provided to employees by way of an annual submission and payment to HMRC, without disturbing the employees’ tax and NIC positions. Items included in a PSA aren’t required to be reported separately, for example, via the payroll or in the employee’s P11D. Instead of being taxed to the employee via the P11D process, they’re taxed to the employer through this annual settlement. Furthermore, rather than class 1A NICs being due via the P11D(b), the value of the benefits is subject to class 1B NICs. What can we include in a PSA? To be included in a PSA, an item must be minor, irregular in nature or impracticable for the employer to operate PAYE on, or to identify how much of a shared benefit is attributable to a single employee and include it on a P11D. Examples of taxable items which can be included in a PSA are: l staff lunches / meals and staff entertainment l non-cash staff awards l taxable travel costs associated with hybrid workers l trivial benefits over £50, such as wedding / birthday / Christmas gifts. HMRC’s published guidance states that
which would normally give rise to a class 1 or class 1A liability and on the total amount of tax payable by the employer under the PSA. For the 2022/23 tax year, class 1B NICs will be charged at a higher blended rate of 14.53%, because of the changes to NICs rates mid tax-year. The tax and class 1B NICs are due by 22 October following the tax year (assuming payment is made electronically). The annual PSA calculation must be submitted to HMRC earlier, usually by 31 July following the tax year, although the date of submission will be confirmed in the PSA contract issued by HMRC. Does HMRC check employment tax compliance? Yes, it does. If an employer is chosen for a HMRC employer duties review, this will invariably look at P11D, payrolling and PSA compliance, often over several tax years. The problem areas we often see when an employer’s compliance in relation to employee benefits (not covered by an exemption or where the specific exemption criteria isn’t met) are reviewed by HMRC include: l not identifying taxable benefits and expenses associated with hybrid working l not reporting staff entertainment l not reporting reimbursements of items thought to be trivial benefits l not reporting flexible benefits provided under salary sacrifice arrangements l not reporting taxable employee non- cash awards and gifts l missing benefits associated with the use of company provided vehicles. Where taxable benefits haven’t been correctly reported to HMRC for employees, HMRC will often ‘invite’ the employer to settle the income tax due on those unreported benefits on a ‘grossed-up’ basis. The employer will also be held responsible for the employer’s NICs underpaid, together with HMRC interest charges and penalties. Mistakes can therefore be expensive, especially when the error has arisen over multiple years and across multiple employees. n For more information, or if you have any questions or concerns, please contact: Lee Knight : http://ow.ly/1cBn50NzLF4 Susan Ball : http://ow.ly/PLfV50NzLGG.
rates of each employee concerned. Importantly, it’s necessary to also consider the tax rates applicable to employees resident in each of the
countries of the UK, since the devolved governments (of Scotland and Wales currently) can set the rates of income tax payable by taxpayers resident in those countries. For 2022/23, the tax rates in Wales remain consistent with the rates in England and Northern Ireland, but Scottish tax rates are different. Therefore, care is needed to ensure you apply the tax rates correctly in your calculations. Also, bear in mind that as the company is settling a tax liability on behalf of its employees, this represents a further benefit and so the tax due is calculated on a grossed-up basis. Class 1B NICs are then charged on the value of all benefit items included in the PSA calculation
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| Professional in Payroll, Pensions and Reward |
Issue 90 | May 2023
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