After 5 July 2018, you can’t apply for a PSA for the 2017 to 2018 tax year.
As a reminder, a PAYE Settlement Agreement (PSA) allows an employer to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits.
HMRC highlights the benefits that an employer ‘won’t need to:
- put them through your payroll to work out tax and National Insurance
- include them in your end-of-year P11D forms
- pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead)’
It is important to remember that businesses do not need to pay tax on a benefit for an employee if all of the following apply and so are not required to be part of a PSA:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract.
It is also worthwhile remembering that HMRC’s Employment Income Manual, in the section Particular benefits: exemption for trivial benefits – relationship with other exemptions (from 6 April 2016), states that ‘where a benefit is covered both by the trivial benefits exemption and also by another exemption, in applying the trivial benefits exemption, you should apply the outcome that is most favourable to the employee’.
The section includes the following examples:
‘Example S
Employer S provides its employees with two annual functions at Christmas and in the summer. The first function costs the employer £140 per head and the second costs £40. The first function is covered by the annual parties and functions exemption under section 264 ITEPA. The second function is not covered by that exemption because the financial limit of £150 has been exceeded by the combined total of the two events. However, the second function can be covered by the trivial benefits exemption because the cost did not exceed £50.
If an existing exemption exempts only part of a benefit, even if the excess cost is less than the trivial benefit monetary limit, that excess is not exempt.
Example T
Employer T provides its employees with an annual function at Christmas that costs it £180. The benefit is not exempt under the annual parties and functions exemption under section 264 ITEPA because the cost of £180 exceeds the financial limit for the exemption of £150. Nor is the benefit covered by the trivial benefits exemption because the cost of £180 exceeds the trivial benefit financial limit of £50.’
Article from ACCA In Practice