If you’re a small to medium-sized (SME) business owner with a number of employees, you may wish to consider applying for a PAYE Settlement Agreement (PSA) to simplify your tax and National Insurance Contributions (NICs) paid on small, irregular, and impracticable expenses or benefits paid out to your employees.
Why Apply for a PAYE Settlement Agreement
If you’re frequently totting up minor taxable expenses, such as employee entertainment, birthday presents, or incentive awards, PSA may dramatically reduce the amount of paperwork you have to complete.
Under the PAYE Settlement Agreement you’ll no longer have to put these expenses through your employee’s payroll, pay Class 1A NICs on them (you’ll pay Class 1B NICs through your PSA), or include these expenses in forms P9D and P11D.
What You Should Include
Touched upon above, you can and should include minor expenses and benefits in your PSA, such as small birthday presents for your employees, health club memberships, expenses deemed to be personal yet incidental, or even a present, flowers, or a voucher should an employee fall ill.
You may also include irregular and impracticable expenses or benefits. Irregular expenses or benefits are self explanatory and can be applied to non-minor expenses or benefits provided to your employees infrequently, under no set pattern.
For example, if you provided an employee with free use of your company holiday apartment once in 2009, once in 2011, and once again in 2014 this would be seen as an irregular benefit, and fall under PSA. If you let the same employee stay in your company holiday apartment every summer, however, this would be seen as a regular benefit.
Impracticable expenses or benefits include anything where it’s hard to divide up the value of a certain employee’s expenses or benefits, or indeed difficult to understand the value of said expenses in the first place. In this category, HMRC provide examples of the cost of hairdressing services, shared cars and Christmas parties that don’t already receive tax relief.
How to Apply
To apply for a PSA you must write to HMRC (details below) with a description of the specific expenses and benefits you’ve provided to employees working for your SME that you believe can be covered. HMRC will then confirm or deny each expense and benefit and send you your PSA form (P626).
To complete your PSA, follow the instructions available on the form itself, as well as on form PSA1, adding up your tax and NICs for each item. Each item HMRC denied when you applied for a PSA should be reported in form P9D or P11D.
Your PSA must be receive by HMRC on or before 6 July of the tax year after your PSA applies. For example, a PSA for tax year 2014-15 must be received by 6 July 2015.
National Insurance payments due as part of your PSA must be received by 22 October of the tax year after your PSA applies (22 October 2015 for tax year 2014-15). Payments can be made via direct debit, internet banking, and cheque. Cheques must be received no later than 19 October. HMRC emphasise that you will receive a payslip from them with your PSA reference number and you should therefore not use your PAYE Accounts Office reference number on your PSA.
Experienced PSA Advice for SME Owners
This has been a brief explanation of the PAYE Settlement Agreement, and the time it can save in reducing the amount of paperwork for SME business owners with employees. For a more detailed overview of the PSA, and for postal addresses, phone numbers, and payment dates, visit the Government’s comprehensive overview of the topic.
To speak with a professional to discuss the PAYE Settlement Agreement, and any issues you have about applying, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.