Pay As You Earn Settlement Agreements, commonly known as PSAs, are a valuable tool for employers who want to reward their employees without incurring additional tax and national insurance liabilities ...
PSAs are agreements between HM Revenue and Customs (HMRC) and employers that allow for the payment of tax and national insurance on minor, irregular, or impracticable expenses or benefits provided to employees!
These expenses or benefits are considered part of the employee's employment and would normally incur a tax and NI liability. However, by adding them to a PSA, employers can cover these liabilities on behalf of their employees.
In order to be eligible for a PSA, expenses or benefits must fall under the categories of minor, irregular, or impracticable. Minor expenses or benefits have no monetary limits and can include gifts for significant events such as marriages, a new child, or moving house.
Irregular expenses or benefits are those that are paid at irregular intervals and would be difficult for an employer to keep track of and report on. Examples of these could be using an employer's holiday home or relocation expenses. Impracticable expenses and benefits are those that would be impractical to determine the value of, such as long-service awards.
By adding these rewards onto a PSA, employers do not need to complete P11Ds for each individual employee, saving time and resources. Additionally, by paying Class 1B national insurance as part of the PSA, employers can avoid any potential penalties for incorrect or late reporting.
PSAs also offer a way for employers to provide meaningful rewards to their employees without incurring additional tax and NI liabilities. This can help boost employee morale and motivation, leading to increased productivity and job satisfaction.
Employers can apply for a PSA by completing form PSA1 and sending it to HMRC before the end of the tax year. The form will require details of the expenses or benefits to be included in the PSA, as well as an estimated value. Once the PSA has been agreed upon by HMRC, the employer will make one annual payment to cover all the liabilities.
It's important to note that PSAs do not cover all expenses or benefits and there are certain exclusions, such as cash payments or vouchers. Employers should consult with HMRC or their payroll provider to ensure that all expenses or benefits are eligible for inclusion in a PSA.
They can use a PSA to reward their employees without incurring additional tax and national insurance liabilities. By understanding the intricacies of PSAs and their benefits, employers can streamline their payroll processes and provide meaningful rewards to their employees.
With the help of PSAs, employers can ensure that their employees feel appreciated and motivated, leading to a more productive and satisfied workforce.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.