What’s a PAYE settlement agreement?

PAYE settlement agreements (PSAs) are optional arrangements that allow employers to pay the tax and National Insurance contributions (NICs) for benefits-in-kind on behalf of their employees. They’re also useful when declaring benefits on P11D forms would be administratively burdensome.

PSAs have therefore proved popular with employers, even if they can be expensive; if you’re paying the tax and NICs on behalf of your employees, this is itself subject to tax and NIC.

However, this popularity is proving to be a headache for HMRC. Although it up to the employer (or their agent) to calculate that tax and NIC payable each year, PSAs are not strictly a self-assessment system. Each calculation needs to be approved by HMRC before the payment deadline of 19 October (22nd if paying electronically).

Processing delays

Over the past few years, HMRC have been getting further and further behind in approving PSA calculations sent to them by employers. For 2018/19 the situation has reached a new low. Less than two weeks before the payment deadline we have been informed by HMRC that they have not even started to process PSA calculations.

This means that employers won’t have a letter from HMRC confirming the amount to pay, where to pay it and, crucially, the payment reference to use. This reference is specific to each employer and tax year.

What to do

HMRC have told us that employers should not wait to receive confirmation of their PSA calculations. Instead, you should pay over the tax and NIC liability that you have calculated using the usual payment methods, detailed on HMRC’s website by the payment deadline above.

You must still use a payment reference, even though HMRC won’t have sent you a confirmation letter. Fortunately, a payment reference can be found in the letter from HMRC enclosing your countersigned P626 – the letter that put the agreement in place. Although it is not tax-year specific, it is unique to each employer and therefore HMRC have confirmed to us that it can be used in this situation. This is in the format XX0000123456789.

What next?

If you are in any doubt, we suggest that you contact the HMRC employer helpline on 0300 200 3200 to confirm your PSA payment reference as soon as possible, making sure that you have your PAYE reference number to hand.

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Aidan Roberson - Tax Manager

E: aroberson@goodmanjones.com

T +44 (0)20 7874 8845

Aidan helps company directors, partners and private individuals and families with their personal tax with an emphasis on inheritance tax. He enjoys bringing clarity to the complex problems which arise in these areas, providing people with clear, actionable advice.

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