PAYE Settlement Agreements (PSA’s) are requested by Employers and subject to agreement with HMRC. Under this agreement the employer will be responsible for accounting for any tax and national insurance liabilities arising. Any items covered by a PSA will not need to be shown on forms P35 and P11D at the end of the tax year.
Applications for PSA’s should be made before 6th July 2013 if you want to use them for the tax year ended 5th April 2013, once approved by HMRC payment of the Tax and NI is due by the 19th October (payments by cheque) or 22nd October (payments online).
The tax due is grossed-up at the employee’s marginal rate. For example, £5,000 of benefits provided to higher rate taxpayers (40 per cent) would be grossed-up as follows:
Benefits of £5,000 x 40 per cent = £2,000 tax
Grossed-up tax = £2,000 x 100/100-40 = £3,333.33
Benefits plus grossed-up tax = £8,333.33 x 13.8 per cent Class 1B = £1,149.99
Total due to be paid £3,333.33 tax plus £1,149.99 Class 1B = £4,483.32
- incentive awards
- reimbursement of late night taxi fares outside s248 ITEPA 2003
- personal incidental expenses in excess of the statutory daily limit
- present for an employee in hospital
- staff entertainment, for example a ticket for Wimbledon
- use of a pool car where the conditions for tax exemption are not satisfied
- subscriptions to gyms, sports clubs etc
- telephone bills
- gift vouchers and small gifts
HMRC (PSA 1070) examples (not exhaustive) of what may constitute an irregular item.
- relocation expenses where the amounts concerned exceed the £8000 tax exempt threshold (Section 287 ITEPA 2003)
- occasional attendance at an overseas conference where not all the expenses qualify for relief
- expenses of a spouse occasionally accompanying an employee abroad
- occasional use of a company holiday flat
- one off gifts which are not minor.
HMRC (PSA 1080) examples (not exhaustive) of what may constitute an impracticable item
- free chiropody care
- hairdressing services
- Christmas parties and similar entertainment provided by the employer which do not already qualify for relief
- cost of shared taxis home which do not satisfy s248 ITEPA 2003
- shared cars.
Gov.uk has guidance on How to get a PSA