PAYE Settlement Agreements
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1. Overview
A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees.
This guide is also available in Welsh (Cymraeg).
If you get a PSA for these items you will not need to:
- put them through your payroll to work out tax and National Insurance
- include them in your end-of-year P11D forms
- pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead)
Some employee expenses are covered by exemptions (which have replaced dispensations). This means you will not have to include them in your end-of-year reports.
2. What's included
The expenses or benefits you include in a PAYE Settlement Agreement (PSA) must be minor, irregular or impracticable.
Minor
Examples of minor benefits and expenses include:
- incentive awards, for example for long-service
- telephone bills
- small gifts and vouchers
- staff entertainment, for example a ticket to an event
- non-business expenses while travelling overnight on business that are over the daily limit
You do not need to include trivial benefits in your PSA.
Irregular
Irregular benefits and expenses are things that are not paid at regular intervals over the course of a tax year, for example weekly or monthly. They’re also things that employees do not have a contractual right to. Examples of irregular expenses and benefits include:
- relocation expenses over £8,000 (these are tax-free below £8,000)
- the cost of attending overseas conferences
- expenses of a spouse accompanying an employee abroad
- use of a company holiday flat
Impracticable
Impracticable expenses and benefits are things that are difficult to place a value on or divide up between individual employees. Examples of impracticable expenses and benefits include:
- staff entertainment that is not exempt from tax or National Insurance Contributions
- shared cars
- personal care expenses, for example hairdressing
What’s not included
You cannot include wages, high-value benefits like company cars, or cash payments such as:
If you apply after the start of the tax year, there are extra restrictions on what you can include.
3. How to get a PSA and tell HMRC what you owe
You can apply to get a PAYE Settlement Agreement (PSA) online. If you’re unable to apply online, you can apply by post.
You can get an agent to apply for a PSA on your behalf. You’ll need to give them a signed letter of authority if they do not have authorisation to apply already.
Contact the HM Revenue and Customs (HMRC) employer helpline if you want advice on getting and calculating your PSA.
Apply online
You need your employer PAYE reference. This is a 3 digit number, a forward slash and then a mix of letters and numbers, like 123/AB456. You can find this on letters you’ve got from HMRC about PAYE.
You also need contact details, including:
- the name of your business
- an address
- your telephone number
- your email address (unless you sign in with a Government Gateway user ID)
HMRC will check what’s included in your PSA. They’ll contact you if there are any issues
If your request is authorised, you’ll get a confirmation email or letter. You’ll then be sent your PSA by post.
Apply by post
Write to HMRC Business Tax and Customs describing the expenses and benefits you want the PSA to cover.
PAYE Settlement Agreements
HM Revenue and Customs
BX9 2AN
Once HMRC have agreed on what can be included, they’ll send you 2 draft copies of form P626. Sign and return both copies. HMRC will authorise your request and send back a form - this is your PSA.
Tell HMRC what you owe
Once you have your PSA, you need to tell HMRC what you owe every tax year.
Complete and submit the online form. If you do not, HMRC will calculate the amount. You’ll be charged more if this happens.
You’ll need to report anything that cannot be included in your PSA separately using form P11D. You do not need to send a P11D if you’re paying employees’ expenses and benefits through your payroll.
What happens next
The agreement will continue until either you or HMRC cancels it or you need to change it. You do not need to renew the PSA each tax year.
4. Deadlines and payment
The deadline for applying for a PAYE Settlement Agreement (PSA) is 5 July following the first tax year it applies to.
Example
For the tax year 2023 to 2024, you’ll have until 5 July 2024 to apply for your PSA.
What you can include in your PSA depends on when you apply.
When to pay
You must pay any tax and National Insurance owed under a PSA by 22 October after the tax year the PSA applies to (19 October if you pay by post).
You may be fined or charged interest if you do not pay or your payment is late.
What to include in your first PSA payment
If you apply for a PSA before the start of a tax year, you can include any expenses and benefits contained in the agreement.
If you apply for a PSA after the start of the tax year, you might need to report some items separately.
If you apply for a PSA before 6 April 2024
You must use form P11D to report expenses and benefits provided to employees before the PSA agreement date that you:
- have already included in your employee’s tax code
- included (or should have included) in your employee’s PAYE tax and National Insurance deductions
If you apply for a PSA between 6 April 2024 and 5 July 2024
You must use form P11D to report expenses and benefits provided to employees during the tax year that you:
- have already included in your employee’s tax code
- included (or should have included) in your employee’s PAYE tax and National Insurance deductions
5. Change or cancel a PSA
You can apply to change or cancel your PAYE Settlement Agreement (PSA) online. If you’re unable to apply online, you can apply by post.
Apply to change or cancel online
You need your employer PAYE reference. This is a 3 digit number, a forward slash and then a mix of letters and numbers, like 123/AB456. You can find this on letters you’ve got from HMRC about PAYE.
You also need contact details, including:
- the name of your business
- an address, if you’re applying to change your PSA
- your telephone number
- your email address (unless you sign in with a Government Gateway user ID)
Once the changes or cancellation have been made, you’ll get confirmation in an email or a letter.
If you’ve applied to cancel your PSA, HMRC will cancel it from the date you ask for on the form.
Apply to change or cancel by post
If you want to change your PSA, send details of the changes to the office that issued your PSA. HM Revenue and Customs (HMRC) will send you a revised P626 that you need to sign and return.
If you want to cancel your PSA, ask the office that issued your PSA to send you a P626. Fill in the return slip section of the P626 and send it to HMRC.
PAYE Settlement Agreements
HM Revenue and Customs
BX9 2AN
If you’ve applied to cancel your PSA, HMRC will cancel it on the date you put on the return slip.
If you cancel your PSA
You need to report any outstanding tax and National Insurance Contributions (NICs) due on benefits and expenses using form P11D and form PSA1.
You need to pay any outstanding tax and NICs by 22 October after the tax year the PSA applies to (19 October if you pay by post).
You need to pay any NICs owed on expenses or benefits listed on the P11D form by 22 July after the tax year it applies to (19 July if you pay by post).
If you continue providing benefits after you’ve cancelled your PSA, you need to either:
- report them on form P11D
- put them through payroll
You can pay any tax or NICs due via PAYE.