Paye Settlement Agreements (PSAs) are a useful tool for UK employers to simplify their tax obligations. PSAs allow for the payment of tax and National Insurance Contributions (NICs) on behalf of employees for expenses and benefits that are not being taxed through the payroll. The payment of these taxes under a PSA relieves the employees’ obligation to report and pay taxes on these benefits.
A PSA is a binding agreement between an employer and HMRC, which must be agreed upon each year. It covers a range of benefits and expenses, which can include:
1. Annual parties and social events
If an employer provides an annual party or social event to their employees, it qualifies for the exemption from tax and NICs under a PSA. This includes any associated costs of the event, such as food, drink, venue hire, and entertainment.
2. Trivial benefits
Trivial benefits, defined as small gifts or perks not exceeding £50 in value, can also be included in a PSA. It can cover employee gifts for birthdays, Christmas, or other special occasions, as well as occasional perks like a free lunch or cinema tickets.
3. Staff entertainment
If an employer provides entertainment to their employees outside of the annual party, such as tickets to a sporting event or music concert, this can also qualify for a PSA. The total cost of the entertainment must not exceed £150 per employee per year.
4. Personal incidental expenses
Personal incidental expenses incurred by employees in the course of their employment, such as the cost of refreshments while on business travel, can also be covered under a PSA.
5. Fuel for company cars
Fuel provided for company cars can be included in a PSA. The employer must keep detailed records of the fuel provided, including the dates, mileage, and cost.
6. Non-allowable expenses
Expenses that are usually not allowable for tax purposes, such as relocation expenses or the cost of commuting, can also be included in a PSA.
In conclusion, a PSA can cover a range of benefits and expenses that are not being taxed through the payroll. Employers interested in entering into a PSA should review their policies and practices to determine what benefits and expenses can be included. Employers should also keep detailed records and ensure that they comply with HMRC’s requirements for the PSA. By taking advantage of a PSA, employers can simplify their tax obligations and provide their employees with added benefits and perks.