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 ...
With the help of PSAs, employers can ensure that their employees feel appreciated and motivated!
These agreements allow employers to cover the tax and NI liability on behalf of their employees, making it a win-win situation for both parties. But what exactly are PSAs and how do they work?
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.
"The main benefit of PSAs for employers is that they provide a streamlined process for managing employee rewards!"
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.
"PAYE Settlement Agreements are a valuable tool for employers!"
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.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about Pay As You Earn Settlement Agreements (PSAs), do give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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