A PAYE Settlement Agreement (PSA) allows an employer to make one annual payment to cover all the tax and National Insurance (NI) due on minor, irregular or impracticable expenses or benefits. However, the deadline for making an application for a PSA is fast approaching and after 5 July 2018, as an employer, you won’t be able to apply for a PSA for the 2017/18 tax year. Nicola Roby from CHW Small Business Accountants Bolton explains further.
The benefits of a PSA are that an employer won’t need to:
• put the benefits through the payroll to work out tax and NI
• include the benefits in the in the end of year P11D forms
• pay Class 1A NI on the benefits at the end of the tax year. Instead, the employer pays Class 1B NI as part of their PSA.
It is important to remember that employers do not need to pay tax on a benefit for an employee if all of the following apply, and therefore are not required to be part of a PSA:
• 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 the employee’s contract.
What benefits and expenses are considered minor, irregular and impracticable?
• incentive awards, for example for long-service
• telephone bills
• small gifts and vouchers
• staff entertainment, for example a ticket to an event
• non-business expenses while travelling overnight on business that are over the daily limit
• 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
• staff entertainment that isn’t exempt from tax or NI
• shared cars
• personal care expenses, for example hairdressing
How do I obtain a PSA?
Firstly you must write to HMRC Business Tax Operations describing the expenses and benefits you want the PSA to cover.
Once HMRC have agreed on what can be included, they’ll send you 2 draft copies of form P626. Sign and return both copies and if HMRC authorise your request they will send you back your PSA.
You’ll need to report anything that can’t be included separately via a P11D. However, you will not need to send a P11D if you’re paying employees’ expenses and benefits through your payroll.
You should use form PSA1 to help you calculate the amount you are required to pay. If you don’t, HMRC will calculate the amount and this will cost you more.
Send the completed form to HMRC as soon as possible after the end of the tax year. They’ll get in touch with you before 19 October following the tax year that the PSA covers to confirm the total tax and NI you need to pay.
How do I renew a PSA for the 2018/19 tax year?
HMRC should have sent you a new PSA for the 2018/19 tax year before April 2018. If there have been no changes since your PSA for the 2017/18 tax year was agreed, all you need to do is sign the new agreement.
Once you have a PSA in place for the 2018/19 tax year, HMRC won’t send you a new PSA and you won’t have to renew it. The agreement will continue until either you or HMRC cancels or amends it.
If HMRC approves your PSA before the start of the tax year, you can include any expenses and benefits contained in the agreement.
If they approve it after the start of the tax year, you may need to report some items separately.
After 5 July 2018 you can’t apply for a PSA for the 2017 to 2018 tax year so you really need to act now!
When must I pay?
You must pay any tax and NI owed under a PSA by 22 October after the tax year the PSA applies to (19 October if you send a cheque by post), and you could be subject to penalties and interest if you fail to pay or your payment is late.
For advice about whether a PSA could be appropriate for you or for any other advice regarding your finances contact the team at CHW Small Business Accountants Bolton on 01204 534031 or via our contact us page.
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