If you have a PAYE Settlement Agreement (PSA) in place for 2019/20, you will need to pay the tax and National Insurance due under the agreement by 22 October 2020, assuming payment is made electronically. If you pay by cheque, the cheque must reach HMRC by the earlier date of 19 October 2020.
Nature of a PSA
A PSA enables an employer to pay the tax on certain benefits in kind on the employee’s behalf. This can be useful to preserve the goodwill element of a benefit. As the payment of an employee’s tax is itself a taxable benefit, tax must be paid on that too. Where a PSA is in place, Class 1B National Insurance contributions are payable on the items included within the PSA that would otherwise attract a Class 1 or Class 1A National Insurance liability, and also on the tax payable under the PSA. Class 1B contributions are employer-only contributions that are payable at the rate of 13.8%.
A PSA is an enduring agreement, and once set up remains in place until cancelled by the employer or HMRC. A new PSA must be agreed by 6 July after the end of the tax year to which it relates. Guidance on setting up and using a PSA can be found on the Gov.uk website.
Calculating the tax – the need to gross up
To take account of the fact that the payment of an employee’s tax by the employer is itself a taxable benefit, it is necessary to gross up the tax on benefits included within the PSA at the marginal rate of tax of the employees receiving the benefit.
Where benefits provided to Scottish and Welsh taxpayers are included within the PSA, the appropriate Scottish and Welsh rates of tax are used in the grossing up calculation.
You can use form PSA1 to calculate what you owe under a PSA.
Paying the tax and National Insurance
If you have a PSA in place for 2019/20, you should quote your PSA reference when making your payment. This can be found on your PSA confirmation letter. It is important that this reference is used rather than your Accounts Office reference so that the payment is treated correctly. If you use your Accounts Office reference, your payment will be allocated to your normal PAYE account and you will receive reminder letters regarding the tax due under your PSA as HMRC will not recognise it as being paid.
Talk to us
We can help you work out what you need to pay under your PSA. Contact us on 0114 213 4731 or email@example.com for further information.