PAYE Settlement Assessment
A PSA is an annual agreement made with HMRC whereby employers can settle certain tax liabilities on behalf of their employees.
It cannot be used for major benefits such as cars or medical insurance, but is a way of dealing with smaller taxable benefits that would otherwise have to be returned on forms P11D and the employees taxed accordingly.
The employer notifies HMRC of the benefits to be included in a PSA. HMRC will issue two copies of a contract. The employer signs and returns these to HMRC no later than 5 July following the end of the tax year in question. Once agreed, the employer will calculate the tax and NICs on the total cost of all events (this has to be done on a grossed up basis) and send details to HMRC. A payslip will be issued to settle the liability by 19 October.
The PSA contract is renewed annually.
A typical benefit included in a PSA: staff entertainment.
The employer arranges for staff drinks to celebrate the business achieving a sales target. As this is staff entertaining, the costs are taxable on the employees. The employer does not want them to suffer tax on this and would prefer to settle the tax liability on their behalf. An approach to HMRC for a PSA will address the matter.