UK PAYE Settlement Agreement (PSA)

A PAYE Settlement Agreement (PSA) is a voluntary agreement with HMRC that allows companies to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable employee expenses or benefits.

Items included in a PSA are not required to be reported separately, for example, via the payroll or in the employee’s end-of-year P11D form.

Expenses included in a PSA must be minor, irregular or impracticable.

• Minor: There is no pre-determined limit to the value, but examples include:
  • incentive awards, for example, for long-service;
  • telephone bills;
  • small gifts and vouchers;
  • staff entertainment, for example, a ticket to an event or annual party if they exceed the exemption limit;
  • non-business expenses while travelling overnight on business that are over the daily (per diem) limit.
• Irregular: Irregular benefits and expenses are not paid regularly over a tax year, for example, weekly or monthly. They’re also things that employees do not have a contractual right to. Examples of irregular expenses and benefits include:
  • relocation expenses over £8,000 (these are tax-free below £8,000);
  • the cost of attending overseas conferences;
  • expenses of a spouse accompanying an employee abroad;
  • use of a company holiday flat.
• Impracticable: Impracticable expenses and benefits are difficult to place a value on or divide between individual employees. Examples of impracticable costs and benefits include:
  • staff entertainment that is not exempt from tax or National Insurance Contributions;
  • shared cars;
  • personal care expenses, for example, hairdressing.

• You cannot include wages, high-value benefits like company cars, or cash payments such as:
  • employee bonuses;
  • round sum allowances;
  • beneficial loans in a PSA;
• You do not need to pay tax on a trivial benefit for your employee (e.g., Christmas gifts) if all the following apply:
  • it cost you £50 or less to provide;
  • it isn’t cash or a cash voucher;
  • it isn’t a reward for their work or performance;
  • it isn’t in the terms of their contract.
• Annual events, in case
  • Cost is under £150 per attendee;
  • Open to all employees;
  • Annual, such as a Christmas party or summer barbecue
• You do not have to report on certain routine exempt business expenses and benefits, if you pay a HMRC benchmark flat rate or reimburse the actual costs, such as:
  • business travel and subsistence to/at a temporary workspace;
    • Example: mileage, train fare, hotel accommodation;
  • phone bills;
  • business entertainment expenses;
  • uniform and tools for work.