A PAYE Settlement Agreement (PSA) is a voluntary arrangement between an employer and HMRC that allows the employer to pay the tax and National Insurance on certain employee benefits and expenses on behalf of their staff.
Instead of processing these items through payroll or reporting them on P11D forms, you make one annual payment to cover everything included in the agreement.
Why use a PSA?
- Simplifies admin – No need to include items in payroll or on P11Ds
- Improves employee experience – Staff don’t pay tax on the benefits
- Ensures compliance – Avoids errors in reporting minor or irregular benefits
What can be included in a PSA?
A PSA is ideal for items that are:
- Minor
- Irregular
- Impracticable to allocate
These are expenses that are difficult to attribute to individual employees or not worth the admin of reporting separately.
What can’t be included?
You cannot include:
- Salaries, bonuses, or wages
- High-value benefits like company cars
- Cash payments or beneficial loans
These must still be reported and taxed through the usual PAYE or P11D processes.
How does a PSA work?
- Apply to HMRC – You must apply before 6 July following the end of the tax year
- Agree on the items – HMRC will confirm what can be included
- Submit a PSA1 form – This outlines the value of the benefits and calculates the tax and Class 1B National Insurance due
- Pay HMRC – The payment is due by 19 October (or 22 October if paying electronically)
Once agreed, the PSA remains in place until you cancel or amend it.
A PAYE Settlement Agreement is a smart way to handle those tricky, one-off, or minor employee benefits without overcomplicating your payroll. It keeps things simple, compliant, and employee friendly.
If you would like to discuss this in more detail relating to your business, please feel free to book a free online meeting.
