PAYE settlement agreements are also referred to as PSA in the UK. If you are employed, this process will allow you to cover NICs, tax irregular expenses, and minor expenses on behalf of your company employees. However, the question that arises here is what can be included in it and what cannot be included. This basic guide is designed to cover what is PAYE settlement agreements, how they work, what can be included in PAYE settlement agreements, and what cannot be included. Dive in further to learn more about it.
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What are PAYE Settlement Agreements?
There are many businesses in the UK that aim to offer business benefits to their employees. This can usually include relocation packages, gifts, and staff entertainment. There are exemptions in such cases but such benefits will be liable for income tax and NIC in the UK. So PAYE settlement agreements can be categorised as one of the ways to offer benefits to the employees, however, this does not apply to all the items. These benefits can also be included in the payroll.
How Do PAYE Settlement Agreements Work in the UK?
You can get one settlement agreement with HMRC in the UK in case you do not have one PSA contract already as an employer. This contract will also help you to define what can be included in the benefits of employees and what you can not offer or claim on employees’ behalf. The PSA will be renewed after a year. However, if you have to add new items before this period, you can renew it according to your needs.
Moreover, as an employer, you will be required to give the commutations of NICs and tax of employees once the PAYE settlement agreement is made with HMRC. The computations of Scottish, Welsh and rest of UK employees should be given specially. A standard exemption should also be used where it is required during the process.
What is Included in a PAYE Settlement Agreement?
As mentioned earlier in the discussion the employee benefits included in PAYE settlement agreements should either be irregular, minor, or impracticable. In the case of a minor, there is no pre-determined limit to the value. However, it might include items such as gifts and vouchers to mark good work, or small gifts not covered by the trivial benefits rules. In the case of irregular, this will include items not paid at regular intervals over a tax year.
For instance, relocation expenses are not covered by a certain limit. In the case of Impracticable items where it would be difficult to allocate a value to individual employees would fall into this category. This will include the costs of a staff entertaining event for several employees.
What is not Included in a PAYE Settlement Agreement?
Items like cash payments for the employees will not be included or even considered by HMRC. In the case of round sum allowances, there will not be any consideration of being included by HMRC. Such cases must be subjected to tax and NICs through the employee payroll. Moreover, the large and regular employee expenses like the company car or medical insurance will be part of form P11D. This cannot be taxed through payroll benefits in the kind of employees.
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When are the PAYE Settlement Agreement Deadlines?
There are two deadlines for the PAYE settlement agreement. One is the PSA application deadline and the other is the PSA payment deadline in the UK. The PSA application deadline is the 5th of July and the PSA payment deadline is the 22nd of October. In case of making the payment with a cheque the deadline for the PSA payment will be the 19th of October.
The Bottom Line
In conclusion, the UK regulations regarding PAYE settlement agreements are quite strict. Certain irregular expenses can be considered by HMRC to go in the employee’s favour. However, the employer will have to be quite mindful before the process and have a great knowledge of what can be included and what not. This will help to keep the hefty amounts of penalties away from employees and employers. To be more accurate and sure about the PSA items, you can get in touch with one of our professionals and we would love to be at your service.
Disclaimer: All the information provided in this article on PAYE settlement agreements, including all the texts and graphics, is general. It does not intend to disregard any of the professional advice.
