Class 1B Employer National Insurance contributions and tax are due by 19 October or 22 October if paying electronically. For October 2022 you will need to ensure your electronic payment reaches HMRC by Friday 21 October as the 22 October is a Saturday. Please note where you do not make payments on time or do not make them at all, HMRC will charge interest and you may also receive a penalty. Do not forget when making your payment to include your SAFE reference which is located at the top of your P626 agreement.
Please note that with the announcement and the Health and Social Care Levy Repeal Bill on 22 September 2022, that the rate of National Insurance that will be due on PSAs next year, for the 22/23 tax year will be 14.53% which is a mix of the percentage rates from April 22 to June, then July 22 to October and then from November 22 to March 2023.
What is a PAYE Settlement Agreement (PSA)?
This is an agreement that allows employers to make one annual payment to HMRC, that covers all National Insurance and tax on benefits in kind and or any liability on expenses provided to employees. However, these benefits must fall into the categories, minor, irregular, or impracticable. There are no pre-set monetary amounts that could be defined as minor and requires employers to use objective judgements to determine whether minor applies. For irregular, regardless of whether minor, requires the employer to consider the item itself, what is the usual or normal frequency of its payment and how often it was paid and or given to an employee. Impractical means for the context of a PSA, where an employer would struggle or cannot operate PAYE on an item or could not identify how much of a shared benefit is attributable to an individual and include on a P11D.
It should be noted that National Insurance is employer only and no benefits are provided to employees from the National Insurance paid, e.g. State Pension and is calculated on the total benefits plus tax due.
When might you use or need a PSA?
Before considering whether a PSA can and or should be applied for, it is extremely important employers first check whether they should be declaring any expenses and or benefits in kind via the usual reporting methods such as real time information via payroll or Form P11D. If you can determine by employee each benefit and the value, these are unlikely to be suitable for a PSA, however, where you cannot attribute a benefit or expense to an individual employee, but the employer wishes to pick up the NI and tax costs then a PSA might be used. Of course, with the Trivial Benefits legislation, it might be possible to provide a benefit without the need for a PSA if the value is under £50.
How can you get a PSA?
Whilst there is no specific format for applying for a PSA, usually it is expected employers would use a Form P626. Initially the employer and or advisor would write to HMRC to confirm the expenses and benefits the employer wishes to include on the PSA. Once received by HMRC they will then agree (or not) the items to be covered. If agreed, HMRC will send two copies of the Form P626. The employer would then sign and return both copies to HMRC. HMRC will then authorise the employer request and send back a form; this is then, the employer form to keep. The PSA will continue to be applied each year until either you/HMRC cancel it or amend it.
An agreement can be made before, during or after the tax year, but it must be before 6 July following the end of the tax year for when it first applies. Therefore, if you are considering a PSA for the 2022/23 tax year you would have until up to 5 July to apply for the PSA.
How to tell HMRC the value
You can now complete an online PSA1 form using the Government Gateway to advise HMRC of the value of the items included in your PAYE Settlement Agreement. HMRC should then confirm with you, prior to the 19th of October following the tax year that the PSA covers, the total tax and National Insurance you need to pay. If you would like your advisor/agent to submit a PSA on your behalf, you will need to provide them a signed letter of authority to do so, which will then be sent to HMRC. There have also been recent developments made to the PSA1 form that are for the better. In previous tax years for each PAYE scheme, you would need to do a PSA1 for each devolved government area. For example, if you had employees in Scotland, Wales and England that were included in your PSA, three forms would be required. Now you only need one for each PAYE scheme. Employers still need to calculate separately the tax due for Scottish, Welsh, and English employees that are included, but they can now all be submitted on one form. Where different PAYE schemes are in operation, employers are still required to complete one form per PAYE scheme.
It is crucial the PSA is completed properly, and the declaration be accurate. Over the years HMRC have reported via their website that employers can get the calculations wrong. In my experience employers sometimes do not realise this is a compliance activity and therefore they should not be submitting incorrect data to HMRC, which can result in penalties. Although the PSA remains in place until cancelled or changed, AAB strongly recommends employers conduct periodic or even annual reviews, to ensure the PSA is up to date and that circumstances have not changed. Where employers find a benefit that should not now be included, but instead reported in a different way, it is vital time is allowed to ensure the appropriate reporting method can be adhered to, e.g. P11D reporting prior to 6 July each year.
PSAs can be a complex area, but if you are unsure what benefits can be reported, or would like help to review your PSA and or total remuneration structure, including benefits, please contact Karen Thomson or your usual AAB contact.