After having several queries regarding benefits and expenses we have decided to post a series of articles in respect of certain aspects of the benefit in kind rules, to help employers plan for the upcoming tax year and refresh their understanding of the benefits in kind system.
We will begin our series of articles with the PAYE settlement agreement.
A PAYE settlement agreement is an agreement between an employer and HM Revenue & Customs which allows the employer to make one annual payment to cover the tax and class 1b national insurance due on behalf of their employees on certain expenses or benefits. It also removes the requirement to complete a P11D form for the items included in the agreement.
In order for expenses and benefits to be included in a PAYE Settlement Agreement (PSA) they must be minor, irregular or impracticable. Examples of items that can be included in a PSA are:-
- Staff lunches, meals and entertainment
- Fitness centre subscriptions
- Travel and hotel expenses
- Relocation expenses
- Long service awards
- Trivial benefits over £50 i.e. wedding or Christmas gifts
You cannot include wages, company cars, employee bonuses or beneficial loans.
To set up a PSA you must write to HM Revenue & Customs before 5 July following the end of the tax year to which it relates. You must state the year you wish the agreement to commence and include details of the expenses and benefits you require the PSA to cover. Once HMRC authorise the PSA they will send you 2 copies of form P626 which you will need to sign and return to HMRC. HMRC will then also sign and return one copy to you for your files.
The PSA calculation must be prepared and submitted to HMRC by 31 July each year, following the end of the tax year. Once the calculation is agreed each year HMRC will confirm the amount due with the employer and issue a payslip. The tax and Class 1B national insurance is then payable on 22 October (or 19 October if paid by post), of the same year. If the PSA tax and national insurance amount is not paid by the due date then interest and penalties can be charged.
Once you enter into a PSA the agreement will continue until either you or HMRC cancel it. If you wish to cancel a PSA you simply complete the return section on the form P626 and HMRC will cancel the agreement on the date you put on the slip.
We hope this information is useful to employers. Next time we will cover trivial benefits.
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