A PAYE Settlement Agreement (PSA) enables an employer to settle the tax and National Insurance on qualifying benefits and expenses on their employees’ behalf. Tax is paid on the value of the benefits, grossed up at the employees’ marginal rates of tax. Class 1B National Insurance contributions are paid in place of the Class 1 or Class 1A National Insurance liability that would otherwise arise, and also on the tax due under the PSA.
A PSA is an enduring agreement and once set up remains in place unless amended by HMRC or by the employer. A new PSA must be agreed, or an existing PSA amended, by 6 July after the end of the tax year to which it relates (so by 6 July 2021 for a PSA for 2020/21).
Many employees’ normal working arrangements changed as a result of the Covid-19 pandemic, and the benefits provided to them may have changed as a result.
Normally, where an employer wishes to add additional items to a PSA, HMRC will issue a new form P626. However, where additional items are added for 2020/21 which relate only to Covid-19. HMRC will not issue a new form P626; instead they will add an appendix to the existing enduring PSA. Employers who wish to add Covid-19 benefits that fall outside existing or temporary exemptions to their PSA should email HMRC at firstname.lastname@example.org.
Tax and National Insurance due under a PSA for 2020/21 must be paid by 22 October 2021 where payment is made electronically and by 19 October 2021 where payment is made by cheque.
Written by the Tax Advice Network