Muras Matters: PAYE Settlement Agreement Payment Deadline


For those employers who have a PAYE Settlement Agreement in place the deadline for paying any Income Tax and Class 1B National Insurance due is the 22 October 2022 (or 19 October 2022 if not paying electronically).

Most employers will be aware that providing certain benefits or paying certain expenses to an employee creates a benefit in kind subject to tax on the employee, as well as Class 1A National Insurance contributions (NICs) payable by the employer. A PAYE Settlement Agreement is a statutory arrangement with HM Revenue & Customs (HMRC) through which the employer can pay the Income Tax and National Insurance liability on behalf of their employees for minor benefits in kind and expenses given to their employees.


A PAYE Settlement Agreement (PSA) is an optional arrangement that allows employers to include certain benefits and expenses in a separate return instead of reporting them on employees P11d. The PSA passes the tax and NIC liability on those benefits to the employer so the employee receives the benefit free of any tax or NIC.

A PSA can be particularly useful where an employer wants to provide a benefit or reward to an employee, but does not want the employee to have an extra tax and NIC bill. A ‘reward or perk’ may not be seen as such by employees if they are subsequently faced with an additional tax liability. Instead of using the payroll or P11D process to report the item to HMRC, the employer includes the benefit on form PSA1 and pays the tax and NICs on the employees behalf after the end of the tax year.

Commonly PSAs are used to settle tax on staff-wide benefits where the employer has treated the staff, such as entertaining or gifts, for good service. Although a PSA can equally be used when providing benefits to certain specific employees.

In order for a benefit to be included in a PSA it must satisfy one or more of the following conditions:

  • minor in amount;
  • payable/occurs on an irregular basis;
  • impracticable for the application of PAYE, e.g. shared between a group of employees in unknown proportions.

Cash payments and large items such as company cars or vans can never be included under a PSA. Items for which a PSA is often used include annual staff parties (particularly at Christmas) that exceed the £150 per head exemption or a reward in the form of a meal or a holiday booked by the employer.

A PSA must be agreed with HMRC before the benefits are provided to employees in order for it apply. Otherwise benefits are taxable in the usual way until the PSA is in place. The deadline for paying the tax and NIC due under the PSA is 19 October following the end of the tax year, or 22 October if paying electronically.

Using a PSA can also save significant administrative costs as there is no need to report minor and incidental benefits individually. However, the tax and NIC cost is significant, so it will be necessary for the employer to balance the cost of tax and NIC versus time spent on administration.

If you have any questions regarding the above or are interest in putting a PSA in place before Christmas, please speak to our Tax Director, Jenny Marks.

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