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HMRC And PAYE Settlement Agreements

Are you missing a trick?



HMRC aren't renowned for proactively trying to help reduce your tax bill, so when an opportunity is there, it seems remiss not to consider it. PAYE Settlement Agreements (PSAs) are a good example ...

Don't let HMRC calculate your PAYE Settlement Agreement as you'll pay more!

Don't let HMRC calculate your PAYE Settlement Agreement as you'll pay more!

PSAs were introduced to help make it easier to administer small and minor benefits and keep everyone's admin overheads down. So, though they only cover the 'small stuff', they are worth investigating.

"A PSA is a voluntary agreement with HMRC, negotiated annually!"

This enables employers to cover certain tax liabilities on behalf of their employees. Let's face it, it's not a winning approach to present a member of staff with a small gift, only for them to later discover on their pay slip that they've had to pay tax on it. What was meant to be a simple morale booster suddenly loses its shine.

PSAs are only there to cover small benefits an individual may receive. They are not intended to deal with more substantial benefits such as company cars.

The technical wording HMRC uses to define these small benefits is that they must be "minor, irregular or impracticable". The best way to explain each category is to give you some examples.

Minor Benefits:

  • Incentives, for example, awards given for long-service

  • Telephone/mobile bills

  • Small gifts and vouchers

  • Staff entertainment, for example, a ticket to a sporting event

  • Non-business expenses that are over the daily limit, but are incurred while traveling overnight on business

Irregular Benefits:

If a business covers expenses for things that aren't paid at regular intervals, and are not items that an employee has a contractual right to, then these may be deemed irregular benefits. Examples include:

  • Expenses for relocation over £8,000

  • Overseas conferences

  • The costs incurred when a spouse accompanies an employee abroad

  • The use of a company holiday apartment

Impracticable Benefits:

Sometimes, a business provides benefits that are difficult to value or divide up between employees. These are considered impracticable benefits. Examples include:

If you think it doesn't sound worth the hassle, there are actually good reasons to negotiate a PSA with HMRC. First off, as implied already in our introduction, the disappointment of receiving a small tax bill for a gift is negated. Your genuine act of demonstrating appreciation remains true, and staff morale is maintained.

"But there are, of course, good old-fashioned practical reasons too!"

The tax and NIC you pay on these small benefits are deductible and can be set off against taxable profits. So, the cost to you isn't any higher than you'd initially thought. And, to add to that, this can also then provide you with a small cash flow benefit. Every little helps, as they say.

Yet there is inevitably a process that needs to be followed. Initially, you need to write to HMRC with a description of the benefits you'd like the PSA to cover.

Once they've agreed that the expenses you describe are eligible and can be included, they will send you a form P626. You sign and return two copies. HMRC then authorise your request and return your form again ... and, hey presto, you hold a PSA in your hand.

A word of warning. If you leave HMRC to calculate the amount to be paid, you are likely to be charged more. So, use the PSA1 form to calculate the amount yourself.

At the end of the tax year send the completed form to HMRC and they will contact you in due course to confirm the tax and NIC you need to pay.

PSAs are not admin for the sake of it, but they do still involve admin. You need to get them right, and certain aspects of the process are time sensitive. So, to have your accountant diarising and dealing with a PSA on your behalf does remove the stress and worry of forgetting, as well as the work.

"Would you like to know more?"

It's worth mentioning that the 5th July is the last date each year for agreeing on PAYE Settlement Agreements so if you want to get one sorted, call us on 01908 774320 or click here to ping over an email and let's see how we can help you.

Until next time ...

Business Godparent

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More about Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.