Simplifying PAYE settlement agreements | KPMG | UK

Draft Finance Bill 2017: Simplifying PAYE settlement agreements

Simplifying PAYE settlement agreements

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.

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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 removal of the requirement to agree with HMRC which items can be accounted for in a PSA;
  • The removal of the requirement for upfront annual agreement between employers and HMRC; 
  • Digitisation of the PSA process; and,
  • HMRC to improve PSA guidance to provide clarity for employers on what can and cannot be included within a PSA. This will include, in particular, further guidance on the ‘irregular’ and ‘impractical’ conditions.

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 alignment of the PSA submission date with the Class 1A NICs payment date will not go ahead “at this time”;
  • Employers will not be required to include the number of employees receiving benefits-in-kind or expenses in the PSA submissions;
  • The ‘minor’ criterion will not be removed from the types of benefits-in-kind or expenses which can be included in a PSA; and,
  • There will not be an exemption, cap or other safeguard in respect of office-holders.

Timing 

The measures will take effect for the 2018/19 and subsequent tax years.

Our view 

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.

Contacts

Mike Lavan

+44 (0)20 7311 1437

mike.lavan@kpmg.co.uk 

Kiran Guraya

+44 (0)20 7694 5381

kiran.guraya@kpmg.co.uk 

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Finance Bill 2017 Draft Clauses

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