*Please note that PAYE Settlement Agreements cannot be processed through UK Payroll & need to be processed directly with HMRC*
A PAYE Settlement Agreement (PSA) is a way for employers to pay the tax and National Insurance (NI) on certain employee benefits so the employees don’t have to. It’s especially useful for small perks, one-off gifts, or tricky-to-value expenses.
Basically, it helps avoid a headache by keeping these out of payroll and P11Ds. 🎉
1. What Can Go in a PSA?
You can use a PSA for:
✅ Minor things – Small gifts, staff entertainment, or non-cash vouchers.
✅ Irregular expenses – One-off rewards, like a team lunch after hitting a target.
✅ Hard-to-split costs – If it’s difficult to work out tax for each employee (e.g., shared taxis after a late event).
What Can’t Be Included?
🔴 Cash payments or bonuses (these must go through payroll).
🔴 Company cars, medical insurance, or big-ticket benefits (these belong on a P11D).
2. How to Set Up a PSA
Step 1: Apply to HMRC
- You need to agree on a PSA with HMRC before 6th July after the tax year ends.
- You can apply online or by letter.
Step 2: Calculate the Tax & NI
- You need to gross up the tax (because you’re covering it for employees).
- You also have to pay Class 1B NI (13.8%) on the total value.
Step 3: Pay HMRC
- The tax and NI must be paid by 22nd October (or 19th October if paying by cheque).
3. How Much Tax Do You Pay?
Since employees don’t pay the tax themselves, you need to work out the total cost, including tax and NI. These values are grossed up
Information can be found here on how to calculate the tax
PSA Deadlines – Don’t Miss These!
6th July- Apply for a PSA (or update an existing one).
31st July- Submit PSA calculations to HMRC through a PSA1 form.
19th October- Pay the tax & Class 1B NI (if paying by cheque).
22nd October- Pay the tax & Class 1B NI (if paying electronically).
💡 Why Use a PSA?
✔️ Keeps admin simple – no need to mess with payroll or P11Ds.
✔️ Employees don’t get a tax bill for small perks.
✔️ Great for staff events, rewards, and small gifts.
More guidance & helpful links can be found here:
https://www.gov.uk/paye-settlement-agreements
https://www.gov.uk/government/publications/paye-paye-settlement-agreement-psa1