A consultation on simplifying the PAYE Settlement Agreement (PSA) process has been published by HMRC. This picks up on work undertaken by the Office of Tax Simplification (OTS) in their report on employee benefits and expenses. PSAs are formal annual agreements between an employer and HMRC where the employer agrees to pay the tax and NIC (on a grossed up basis) on certain employee Benefits-in-Kind (BiKs). Only BiKs which are minor, irregular or impractical to apportion can be included in a PSA. Typical items HMRC have accepted on PSAs include staff entertaining, staff gifts, gift vouchers and non-qualifying relocation costs.
The Current Inefficiencies
While the PSA system was introduced to make the system more workable, the OTS identified several inefficiencies in the PSA process which they felt could be streamlined:
The Proposed Fixes
HMRC have accepted the OTS’ findings and are now proposing that:
These will be significant changes, particularly from a timing perspective, given the move of deadline from 19 October to 19 July. It will also require employers to have robust processes in place to identify what benefits are exempt, which need to be reported on Form P11D and which benefits remain taxable and can be included within a PSA. Key to this will be having appropriate expense controls to identify taxable benefits clearly, especially with regard to more complex costs like staff entertaining.
The Proposed Changes to BiKs within a PSA
HMRC are also proposing to more clearly define what can be included within a PSA as follows:
HMRC are also considering whether anti-avoidance legislation is required to prevent abuse by office holders who will necessarily be in a position to control ‘irregular’ BiKs and have asked for comments as to whether such legislation is necessary.
Responses to the consultation have been requested by 18 October 2016. KPMG welcomes this consultation and your views. If you would like to discuss this consultation or any of the reform options further, please do get in touch with your normal KPMG contact.
For further information please contact :