The Government is simplifying the administration of PAYE Settlement Agreements by removing the need to agree them up front and providing further guidance on what can be included.
Who should read this?
Any employer who already has a PAYE Settlement Agreement in place with HMRC and any employer who does not already have an agreement in place but who satisfies the ‘minor’, ‘irregular’ or ‘impractical’ conditions in relation to benefits-in-kind (or taxable expenses) provided to employees and where it would be useful if they did.
Summary of proposal
PAYE Settlement Agreements (PSAs) are formal agreements which employers can enter into with HMRC to allow the employer to pay the income tax and National Insurance Contributions on benefits-in-kind provided to employees which satisfy the ‘minor’, ‘irregular’ or ‘impractical’ conditions. Settlement by the employer is made on a ‘grossed up’ basis. Currently, employers must enter into a formal, written agreement with HMRC by 6 July following the tax year end identifying the items that can be included. The final calculation and tax must then be paid over by 19 October following the tax year end.
Following recommendations by the Office of Tax Simplification, HMRC opened a consultation on PSAs which closed in October 2016. The Government has now published responses to the consultation and a Tax Information and Impact Note (TIIN) on the forthcoming changes to the PSA process. The intention is for the changes to come into effect for the 2018-19 tax year and subsequent tax years.
The main changes which will apply are as follows:
The Government has stated that it will not be extending the scope of what items should be included in the PSA, but that it will “keep this matter under review”.
Key changes since previous proposals
Following responses to the PSA consultation document, the Government has decided not to proceed with the following proposals:
The measures will take effect for the 2018/19 and subsequent tax years.
The Government’s published response to the PSA consultation is welcome. In particular, we welcome the retention of the ‘minor’ category of PSA items and the fact that the PSA submission date will not be aligned with the Class 1A NICs payment date, which would have been an undue administrative burden for employers.
In relation to the alignment of dates, we note that the Government say that this will not be done “at this time”. With the Government’s push for voluntary payrolling of benefits-in-kind (will this become compulsory?), we wonder whether this alignment will be revisited in future as more employers start to payroll their benefits, leaving them freer to deal with the PSA when they would otherwise be preparing forms P11D. Employers might therefore wish to consider looking into voluntary payrolling of benefits-in-kind sooner, whilst it is still voluntary, so that the process is bedded-in if and when the Government decides to accelerate the timing on PSA submissions.
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