2019/20 PAYE Settlement Agreement Deadline Approaches

Contact Karen Groat

or reach out to a member of our International, Payroll & Employment team.

A PAYE Settlement Agreement (PSA) is currently an annual agreement made with HMRC, which allows employers to settle the tax and National Insurance (NI) due on small or irregular taxable expenses or benefits provided to employees.  

The agreement must be put in place with HMRC by 6 July following the end of the tax year you are looking to report benefits forso for the 2019/20 tax year, the agreement should have been in place by 6 July 2020. It is no longer necessary for annual applications, any applications in place for the 2018/19 tax year will roll forward into subsequent tax years. You will only be required to contact HMRC if you would like to add anything to your agreement or if you wish to withdraw your agreement with HMRC. 

The tax and NI due in relation to the PSA calculation should be settled to HMRC by 19  October if paying by cheque, or 22 October if paying online.  

The tax due is calculated on a grossed-up basis at the employees’ marginal rate, given that the employer meeting the tax is seen as a further benefit.  Class 1B employer NI is then calculated on the benefit value plus the grossed-up tax, making a PSA quite expensive for employers.

Items included in a PSA do not require any further reporting on forms P11D or on employees’ tax returns. 

Items that can be included in a PSA must fall into one of the following categories: 

  • Minor items e.g. a small birthday present or Christmas gifts 
  • Irregular items e.g. relocation expenses in excess of the £8,000 tax exemption threshold 
  • Items it’s impracticable to operate PAYE on or determine a value for P11D purposes e.g. staff entertaining and shared benefits such as shared cars or taxi journeys that are difficult to attribute to individual employees

Examples of items that cannot be included in a PSA would be: 

  • Cash payments including salary, wages, bonus and other payments such as long service awards, in excess of the exemptions 
  • Round-sum allowances 
  • Large benefits provided regularly to individual employees, such as company cars or beneficial loans 


There are some useful exemptions that can be utilised in relation to common PSA items and these should be considered to determine how your overall liability can be reduced. These include: 

  • An exemption for annual staff functions open to all employees costing less than £150 per head. This is an area that can often get confused as this is a combined limit, not a per event exemption and is a key area HMRC will focus on in any PAYE compliance review. 
  • A £50 per year of service exemption where a long service award is given in respect of an employee with 20 years of service if they have not had a long service award in the previous 10 years. The second part is critical for the exemption to apply. 
  • An exemption for trivial benefits provided to employees costing less than £50 whereby further specific criteria are met (including not being cash or a cash voucher, contractual or a reward for services). 
  • A gift made on personal grounds or as a mark of personal esteem, for example the gift to an employee on their wedding or birth of a baby. 

Further complications have arisen for 2019/20 with the introduction of the Welsh tax rates. HMRC will now require your PSA calculation to be shown separately for UK, Scottish and Welsh taxpayers which add another level of administrative burden to employers 

If you require any assistance with preparing your PSA calculation for 2019/20 or require advice on the exemptions available and how to apply these, please contact Karen Groat, or your usual AAB contact. 

How AAB can help you with

Payroll & Employment

Accurate, efficient handling of payroll functions and employment tax are fundamental to your success. We help you get them right – easing your workload, ensuring compliance in the UK and globally, and keeping your employees satisfied. Our comprehensive services for payroll and employment taxes address all these issues and help you operate efficiently, confidently and compliantly. Whatever the size of your business, from start-up to global player, all the services you require from us will be tailored to your specific needs and integrated to provide seamless support.

View our payroll & employment service

Related services

Sign up for the latest industry insights

  1. Blog17th Aug 2020

    COVID-19 Travel Restrictions – Impact on Employer PAYE Reporting when NT codes in Operation

    Following the tightening of travel restrictions due to COVID-19, many employers have been faced with having employees who would normally work wholly overseas, ending up based in the UK and carrying out their role either from a residential address, hotel…

    By Karen Groat

    View more
  2. Blog8th Jan 2020

    IR35 – Will the Government Listen?

    On 7 January 2020 the Chancellor, Sajid Javid, announced that the Government will carry out a review of the off-payroll reform, known as IR35, which is due to come in to affect in April 2020. As part of the review,…

    By Karen Groat

    View more
  3. Blog22nd Oct 2019

    Short Term Business Visitors – Changes to the Special Arrangements Regime

    Pay As You Earn (PAYE) special arrangements for Short Term Business Visitors (STBVs) were introduced alongside the normal STBV Appendix 4 to allow for a simplified PAYE procedure to be operated for STBVs. These arrangements were brought in to relax…

    By Karen Groat

    View more
  4. Blog3rd Oct 2019

    IR35 Off Payroll Working – Lesson to be learned from the public sector changes & HMRC ‘nudge’ letters

    Unless you have been hiding under a rock you will be aware that back in July HMRC issued draft legislation on their proposed changes to the current IR35 Off Payroll Working rules in the Private Sector from April 2020, bringing…

    By Karen Groat

    View more