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What is a PAYE Settlement Agreement (PSA)?

Updated: Jul 22, 2023

If you're an employer in the UK, you may have heard of a PAYE Settlement Agreement (PSA). A PSA is a voluntary agreement between HM Revenue and Customs (HMRC) and an employer. In this article, we will explore what a PAYE Settlement Agreement is, how it works, its benefits, and how to apply for one.


A PAYE Settlement Agreement (PSA) is a voluntary agreement between an employer and HM Revenue and Customs (HMRC) that allows the employer to pay tax and National Insurance Contributions (NICs) on behalf of their employees on certain expenses and benefits.


Under normal circumstances, employers are required to report and pay tax on all employee expenses and benefits through the PAYE system. However, a PSA allows an employer to settle the tax liability on a range of expenses and benefits for their employees in a single payment to HMRC.


What is a PAYE Settlement Agreement (PSA)


How Does a PAYE Settlement Agreement work?

A PAYE Settlement Agreement works by allowing an employer to make a single payment to HMRC to cover the tax liability on certain expenses and benefits provided to their employees. The agreement covers items such as minor benefits, staff entertainment expenses, and other expenses and benefits that cannot be easily allocated to individual employees.


The employer will need to apply to HMRC for a PSA before the tax year in which the agreement is to be effective. HMRC will review the application and confirm which expenses and benefits can be included in the PSA. You can fill up PSA online.


Once the agreement is in place, the employer will calculate the total tax and NICs due on the expenses and benefits covered by the PSA, and then make a single payment to HMRC for this amount. The employer is then relieved of the obligation to report these expenses and benefits on individual employees' P11D forms.


Benefits of a PAYE Settlement Agreement

There are several benefits to having a PAYE Settlement Agreement in place. These include:


  • Time-Saving: A PSA can save an employer a significant amount of time by removing the need to report individual expenses and benefits for each employee on their P11D forms.

  • Administrative Simplification: A PSA reduces the administrative burden on employers, as they do not need to calculate tax and NICs on individual items or allocate expenses and benefits to individual employees.

  • Cost-Saving: Employers may save on administrative costs associated with processing individual expenses and benefits, as well as the cost of preparing P11D forms.

  • Reduced Risk of Errors: A PSA reduces the risk of errors in the reporting of expenses and benefits, as they are reported in a single payment to HMRC.

  • Improved Employee Relations: A PSA can improve employee relations by simplifying the process of reporting and paying tax on expenses and benefits, making it easier for employees to understand and less likely to lead to disputes.


How to Apply for a PAYE Settlement Agreement

Employers can apply for a PAYE Settlement Agreement by completing and submitting Form PSA1 to HMRC. The form should be submitted before the start of the tax year in which the PSA is to be effective.


The form requires employers to provide details of the expenses and benefits they wish to include in the PSA, as well as estimates of the amounts to be paid. HMRC will review the application and confirm which expenses and benefits can be included in the PSA.


Once the PSA is agreed upon, the employer will be issued with a reference number which should be included in the payment to HMRC. The employer will need to calculate the total tax and NICs due on the expenses and benefits covered by the PSA and then make a single payment to HMRC for this amount.


How Do I Report PAYE Settlement Agreement (PSA) to HMRC?

If you have a PAYE Settlement Agreement (PSA) in place with HM Revenue and Customs (HMRC), you will need to report it to HMRC each year to ensure that the correct amount of tax and National Insurance Contributions (NICs) are paid.


Reporting a PAYE Settlement Agreement to HMRC involves the following steps:


Step 1: Complete the PSA Annual Return

You will need to complete the PSA Annual Return (Form PSA1) to report the expenses and benefits that are covered by the PSA for the tax year. The PSA Annual Return should be submitted to HMRC by 31 May following the end of the tax year to which it relates.


Step 2: Calculate the Tax and NICs Due

Once you have completed the PSA Annual Return, you will need to calculate the total amount of tax and NICs due on the expenses and benefits covered by the PSA. This should be done using the rates and thresholds in force for the tax year in question.


Step 3: Make the Payment to HMRC

You will need to make a single payment to HMRC for the total amount of tax and NICs due on the expenses and benefits covered by the PSA. The payment should be made by 22 October following the end of the tax year to which the PSA relates.


When making the payment, you should use the payment reference provided by HMRC when the PSA was agreed upon. This will ensure that the payment is allocated correctly to your PSA account.


It is important to ensure that the correct amount of tax and NICs are paid each year under the PSA. If the amount paid is incorrect, you may be liable to pay interest and penalties on any underpaid tax and NICs.


In addition to reporting the PSA annually, you should also notify HMRC of any changes to the PSA during the year. This may include adding or removing expenses and benefits, or making changes to the estimated amounts to be paid.


To notify HMRC of any changes to the PSA, you should complete and submit a revised PSA Annual Return (Form PSA1) to HMRC. This should be done as soon as possible after the change has been made.


In conclusion, reporting a PAYE Settlement Agreement to HMRC involves completing and submitting the PSA Annual Return, calculating the tax and NICs due, and making the payment to HMRC. It is important to ensure that the correct amount of tax and NICs are paid each year and to notify HMRC of any changes to the PSA.



How Do You Submit PSA Calculations in the UK?

In the UK, PSA calculations are submitted to the Department for Business, Energy, and Industrial Strategy (BEIS). The BEIS website provides guidance on how to submit PSA calculations. PSA calculations can also be submitted to other government departments and agencies, such as the Department for Environment, Food and Rural Affairs (DEFRA) and the Environment Agency (EA).


As you may be aware, the PSA (Public Sector Agreement) is a UK government initiative that was introduced in 2013 in order to improve the way in which public sector organizations procure and manage their supplies and services.


One of the key aspects of the PSA is the requirement for organizations to submit PSA calculations in order to demonstrate how they have complied with the rules and regulations. The PSA website provides a range of resources and guidance on how to complete PSA calculations, and this blog post will summarise the key points that you need to be aware of.


Firstly, it is important to note that there are two types of PSA calculations that you may be required to submit:


1. PSA Baseline Assessment

2. PSA Annual Return


The PSA Baseline Assessment is a one-off submission that is required when you first join the PSA and is used to assess your organization's initial compliance with the PSA rules and regulations.


The PSA Annual Return is an ongoing submission that is required every year and is used to assess your organization's compliance with the PSA rules and regulations on an annual basis.


What You Will Need

If you are a UK resident and you have a PSA (Pension Saving Account), you need to submit PSA calculations to the UK government. PSA calculations are used to determine how much tax you need to pay on your pension savings.

To calculate your PSA, you will need:


-Your PSA balance

-Your age

-Your tax band (if you are a higher-rate taxpayer)

-Your expected rate of return on your PSA investments

You can find all of this information on your PSA statement. If you are unsure about any of the information, you can contact your PSA provider.


Once you have all of the information, you can use an online PSA calculator to determine how much tax you owe. Alternatively, you can contact your PSA provider and they can calculate it for you. PSA calculations are due on the 31st of January each year. If you do not submit your PSA calculations, you may be subject to a fine.


It is important to keep track of your PSA balance and make sure that you submit your PSA calculations on time. This will ensure that you do not end up paying more tax than you need to on your pension savings. Now let's dive into this process step by step:


Step One

As you may know, the PSA (Personal Services Authority) is responsible for regulating the self-employed in the UK. If you're self-employed, you need to submit PSA calculations to the PSA on a quarterly basis.

The PSA has a 3-step process for submitting PSA calculations:

1. Register with the PSA

2. Log in to your PSA account

3. Submit your PSA calculations


Let's take a look at each of these steps in more detail:


1. Register with the PSA

If you're self-employed, you need to register with the PSA. You can do this by completing the PSA registration form.

2. Log in to your PSA account

Once you've registered with the PSA, you'll need to log in to your account. You can do this by going to the PSA website and clicking on the 'Login' button.

3. Submit your PSA calculations

Once you've logged in to your PSA account, you'll need to submit your PSA calculations. To do this, you'll need to:

- Go to the 'Calculations' tab

- Enter your self-employment income and expenses

- Click on the 'Submit' button


That's it! Once you've submitted your PSA calculations, the PSA will review them and let you know if everything is correct.


Step Two

In the UK, PSA calculations are submitted through the government's online portal. The process is simple and straightforward and can be completed in just a few minutes.

First, you'll need to create an account on the government's website. Once you've done so, you'll be able to log in and access the PSA submission form.


Next, you'll need to enter some basic information about your property, including its address, square footage, and the number of bedrooms and bathrooms.


Once you've done so, you'll be able to select the type of PSA calculation you'd like to submit. There are four different types of PSA calculations, and each one is designed for a different purpose.


Once you've selected the type of calculation you need, you'll be able to enter the necessary information and submit it for review.


The government will review your submission and provide you with a decision within a few days. If everything is in order, you'll be able to proceed with your PSA calculation.


Step Three

If you're a UK-based company, you'll need to submit your PSA calculations to the Department for Business, Energy, and Industrial Strategy (BEIS) every year. Here's how to do it:

1. first, you'll need to download the PSA calculation spreadsheet from BEIS's website.

2. next, you'll need to fill in the spreadsheet with your company's PSA data.

3. once you've filled in the spreadsheet, you'll need to submit it to BEIS via email.

4. BEIS will then review your PSA calculations and provide feedback.

5. finally, you'll need to resubmit your PSA calculations to BEIS every year.


Step Four

If you are a UK resident and you have a PSA (personal savings allowance), you may be able to submit your PSA calculations to the government. The PSA is a tax-free allowance that allows you to earn interest on your savings without paying any tax on it. The amount of the allowance depends on your tax bracket. For example, if you are a basic rate taxpayer, you will have a PSA of £1,000. If you are a higher-rate taxpayer, you will have a PSA of £500. If you are an additional rate taxpayer, you will have a PSA of £250.


There are a few conditions that you must meet in order to submit your PSA calculations. First, you must have earned interest on your savings in the tax year that you are claiming the allowance. Second, you must have a PSA calculation for each account for which you are claiming the allowance. Third, you must submit your PSA calculations to HM Revenue and Customs (HMRC) before the end of the tax year.


HMRC has an online tool that you can use to submit your PSA calculations. The tool can be found on the HMRC website. You will need to provide your name, address, contact information, and the amount of interest you earned on your savings in the tax year. Once you have submitted your information, HMRC will calculate your PSA and send you a confirmation email.


Step Five

Submitting PSA calculations in the UK is a process that requires the use of a specific form. This form is available on the website of the Department for Business, Energy, and Industrial Strategy (BEIS). The form must be completed in full and submitted electronically.


The PSA calculation form must be submitted:

- Within 5 working days of the PSA being made available to the site operator

- Within 10 working days of the PSA being made available to the site licensee

- Within 15 working days of the PSA being made available to the site occupier

- Within 20 working days of the PSA being made available to the site developer

- Within 25 working days of the PSA being made available to the site owner

Failure to submit the PSA calculation form within the required timeframe may result in a fine of up to £5000.


Conclusion

When completing your PSA calculations, you will need to use the PSA Standard Spreadsheet, which can be downloaded from the PSA website. It is important to note that the PSA Standard Spreadsheet must be completed in full and that any cells which are left blank will be automatically populated with a '0' value.


Once you have completed your PSA calculations, you will need to submit them to the PSA via the PSA Online Portal. The PSA Online Portal is a secure website that is used to submit PSA calculations and can be accessed using your organization's PSA login details. If you have any questions about the PSA or how to complete PSA calculations, you can contact the PSA team at psa@gov.uk.


What is a PSA1 Form?

The PSA1 form is an annual return form that needs to be completed by employers in the UK who have a PAYE Settlement Agreement (PSA) with HM Revenue and Customs (HMRC). The PSA1 form is used to report the expenses and benefits that have been included in the PSA for the tax year and to calculate the amount of tax and National Insurance Contributions (NICs) that are due.


You have different PSA1 forms for different areas of the UK which are:



The PSA1 form requires the employer to provide information on the expenses and benefits that have been included in the PSA, such as:


  • Christmas parties and other social functions

  • Staff entertainment

  • Round sum allowances

  • Other minor items


The form also requires the employer to provide estimates of the amount of tax and NICs due on the expenses and benefits included in the PSA.


The PSA1 form must be completed and submitted to HMRC by 31 May following the end of the tax year to which it relates. Once HMRC has received the PSA1 form, they will review it and send the employer a calculation of the tax and NICs due on the expenses and benefits included in the PSA.


It is important to note that the PSA1 form is only used to report expenses and benefits that have been included in the PSA. If an employer has expenses and benefits that are not covered by the PSA, they will need to report these separately to HMRC through their payroll system.


In summary, the PSA1 form is an annual return form used by employers in the UK who have a PAYE Settlement Agreement with HMRC to report the expenses and benefits that have been included in the PSA for the tax year and to calculate the amount of tax and NICs due on these items. The form must be completed and submitted to HMRC by 31 May following the end of the tax year to which it relates. It is always a good idea to seek professional advice for HMRC-related matters.


PSAs – New Online Service for Employers in the UK: A Comprehensive Overview

HM Revenue and Customs (HMRC) has launched a new online service for employers and their agents to apply for, amend, or cancel a PAYE settlement agreement (PSA). This service, which became available from 6 April 2023, is a significant development for employers, making the process of managing PSAs more streamlined and efficient.


Understanding the New Online Service

The new online service allows employers and their agents to apply for a PSA, amend an existing PSA, or cancel a PSA. This service is designed to simplify the process of managing PSAs and make it more convenient for employers.


To use the service, you need your employer PAYE reference, which can be found on letters from HMRC about PAYE. You also need to provide contact details, including the name of your business, an address, your telephone number, and your email address.


The Deadline for Applying for a PSA

The deadline for applying for a PSA is 5 July following the first tax year it applies to. For tax year 2022/23, you have until 5 July 2023 to apply for a PSA. The expenses or benefits to include in a PSA must be minor, irregular, or impracticable. Trivial benefits do not need to be reported to HMRC and should not be included in a PSA.


More Details About the New Online Service

HMRC has not mandated the use of its new form P626, so the previous print and post option remains available. However, employers and agents are encouraged to use the new digital service. HMRC has improved the process to allow more than one person in a firm to use the same credentials at the same time.


To complete the application for an agreement, employers or agents may wish to use the form via email submission or the government gateway. When confirming agent authorisation for completing the form, the user will be asked to confirm that they have the authority. They will need to upload a letter of authority (64-8) in relation to the PAYE scheme, customer, tax duty, etc.


The data input on the gForm can be printed under the same conditions as other gForms; the option to print is available at the summary stages. It is important to note that users should print before submitting, as the option to print is lost following submission.


The new online service for PSAs is a significant development for employers in the UK. It simplifies the process of applying for, amending, or cancelling a PSA, making it more convenient for employers and their agents. As with any new system, it's important to familiarise yourself with the new process and ensure you're using it correctly. If you're unsure about any aspect of the new service, consider seeking advice from a tax professional or contacting HMRC directly.


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