PAYE Settlement Agreements: 2025 year-end compliance guide
With the 31 December 2025 deadline rapidly approaching, employers should urgently review whether a PAYE Settlement Agreement (PSA) is appropriate for managing minor and irregular non-cash benefits provided to employees during the year. Recent Revenue guidance issued in July 2025 and updated in November 2025 has introduced favourable changes to the calculation methodology and confirmed refund opportunities for prior years.
Key dates and deadlines
| Date | Required action |
| 31 December 2025 | Final date to submit PSA application to Revenue via MyEnquiries |
| 23 January 2026 | Deadline for PSA submission and payment of all taxes due |
Important: To avail of a PSA, employers must submit an application by 31 December 2025. If this deadline is missed, or if employers prefer, benefits can be processed through December payroll as normal taxable items. The choice between PSA and payroll processing is at the employer's discretion.
Understanding PAYE Settlement Agreements
Purpose and scope
A PSA is an optional annual arrangement with Revenue that allows employers to settle the income tax, USC and PRSI on certain employee benefits outside the regular PAYE system. For benefits that are minor in value, irregular in frequency, and non-cash in nature, employers can choose to either process them through payroll or include them in a PSA.
The PSA facility offers an alternative to taxing these benefits through payroll. Where an employer opts for a PSA, they bear the tax cost on behalf of employees, simplifying administration and preserving the incentive value of the benefits provided.
Benefits of using a PSA
For employers who choose this option, the PSA facility offers simplified year-end compliance for difficult-to-track benefits, reduced administrative burden on payroll departments, employee satisfaction as benefits are received tax-free, and avoidance of mid-year payroll corrections and adjustments.
Qualifying benefits: Understanding “minor and irregular”
Revenue applies strict criteria when assessing PSA eligibility. Benefits must meet all three conditions.
Commonly qualifying items
Examples of items frequently included in PSAs include staff entertainment that doesn't meet Revenue's exemption criteria (such as team events or departmental gatherings), gift vouchers and prizes not eligible for the Small Benefit Exemption, long-service awards and performance recognition prizes, late-working taxi fares that don't meet the strict exemption requirements, and gym memberships provided on an irregular basis.
Items that cannot be included
PSAs specifically exclude cash payments or cash equivalents, regular monthly benefits or allowances, benefits already exempt under the Small Benefit Exemption, contractual entitlements, and any benefits forming part of normal remuneration.
Recent Revenue guidance updates
July 2025 calculation methodology change
Revenue has clarified that when calculating the grossed-up value of benefits for PSA purposes, USC and PRSI are no longer included in the gross-up calculation. Previously, the gross-up calculation would factor in income tax, USC and PRSI. Now, only income tax is used for the gross-up calculation, with USC and PRSI then applied to the already grossed-up amount.
For higher-rate taxpayers, benefits are now grossed up at 40% (income tax rate only), representing a significant reduction in the PSA liability for employers already using this facility.
November 2025 refund guidance
Revenue has confirmed that employers who entered into PSAs for 2021, 2022, 2023 and 2024 may be entitled to refunds due to the calculation methodology changes. Revenue will contact affected taxpayers directly, and any approved refunds will include interest at 0.011% per day from the date the tax was originally paid.
Employers seeking refunds should review correspondence from Revenue carefully and respond with all requested documentation. Each claim will be assessed individually based on its specific facts and circumstances.
PRSI rate application
Revenue applies a specified combined PRSI rate to PSAs. The current rate is 15.15% (effective from 1 October 2025), having increased from 14.95%. This combined rate includes both employer and employee PRSI contributions. For comparison, standard Class A PRSI rates total 15.45% (11.25% employer + 4.2% employee), meaning the PSA rate offers a marginal saving.
Practical impact
For a company providing €50,000 in qualifying benefits, the new methodology could result in savings of approximately €8,000 compared to the previous calculation method.
Critical compliance considerations
Enhanced Reporting Requirements (ERR) context
Since January 2024, ERR has provided Revenue with real-time visibility of certain employee benefits, resulting in increased scrutiny during PAYE interventions.
Staff entertainment: A particular focus
Employee entertainment has emerged as a key area of Revenue focus in recent years. While company-wide occasions remain acceptable when genuinely inclusive and reasonable, Revenue increasingly challenges team outings, departmental events, and farewell celebrations as taxable benefits.
In light of this increased scrutiny, maintaining strict controls around staff entertainment is essential, including robust documentation with attendance records, per-head costs, and business rationale. Employers should review costs carefully, particularly items historically treated as non-taxable now being challenged by Revenue, to consider whether these should be included in their PSA to manage the tax obligations rather than passing unexpected liabilities to employees.
Late-working taxi fares
Revenue strictly enforces the conditions for tax-free late-working taxi fares. Work must finish after 10pm and before 6am, journeys must be irregular (maximum 60 annually), and this cannot be part of the employee's normal working pattern. Any deviation from these conditions means the benefit is taxable.
Small Benefit Exemption interaction
Employers must understand the distinction between PSA and Small Benefit Exemption. The SBE allows for up to €1,500 in tax-free benefits (maximum five per employee) from 2025, which must be reported under ERR.
Once an employee has received their full SBE entitlement, any additional vouchers or benefits become taxable. These can be included in a PSA rather than processed through payroll, provided they meet the minor and irregular criteria.
Documentation requirements
Maintain comprehensive records of all benefits provided during the year, including recipients and values, frequency of provision, and business rationale for irregular classification.
Immediate action steps for December 2025
- Review December payroll: With December payrolls currently being processed, employers should consider if any benefits provided during the year fall within the minor and irregular category. For these items, decide whether to tax them through payroll or include them in a PSA application.
- Assessment and application: Apply Revenue's criteria strictly when classifying benefits. Submit your application via Revenue's MyEnquiries system before 31 December, retaining confirmation of submission.
- January 2026 compliance: Prepare detailed PSA calculations early in January. Submit the final PSA return and ensure payment reaches Revenue by 23 January 2026.
Opportunity for historical review
Given the November 2025 guidance, employers who submitted PSAs for 2021-2024 under the previous calculation methodology should consider contacting Revenue regarding potential refunds. Revenue has indicated it will also be contacting affected taxpayers directly. Each claim will be assessed individually based on its specific facts and circumstances, with approved refunds including interest at 0.011% per day from the original payment date.
Common pitfalls to avoid
Leaving preparation too late is a frequent mistake, particularly given current time constraints. Revenue scrutinises "irregular" classifications carefully, so misclassifying regular benefits as irregular can invalidate the entire PSA.
Inadequate documentation to support classifications leaves employers vulnerable during Revenue interventions, while underestimating the tax liability can result in insufficient funds for the January payment deadline.
Conclusion
The PSA facility remains a valuable tool for managing employment tax compliance on minor and irregular benefits. Employers should identify any non-cash benefits provided during 2025 that haven't been processed through payroll, and consider whether these items meet the minor and irregular criteria for PSA inclusion or should be taxed through December payroll.
Given the complexity of the rules, recent changes, and Revenue's increased scrutiny of certain areas, professional advice can ensure optimal compliance while maximising available efficiencies.
How Crowe can assist
Crowe's Employment Tax Advisory Services team provides comprehensive PSA support including:
- Review and identification of PSA-qualifying benefits
- Calculation of tax liabilities under current Revenue guidance
- Application preparation and submission
- Assistance with refund claims for prior years
- Ongoing employment tax compliance advice
For assistance with your 2025 PSA or to discuss the implications of recent guidance changes, please contact:
