PAYE Settlement Agreements (PSA) ― overview

Produced by a Tolley Employment Tax expert

Employment Tax

Guidance

A PAYE Settlement Agreement (PSA) is an agreement between the employer and HMRC not to declare certain benefits and expenses on employees’ P11Ds and for the employer to settle the tax and NIC instead.

Why use a PSA?

PSAs are popular with employers because they avoid the requirement to complete P11Ds for certain benefits and also mean the employee does not bear the tax and NIC cost of the benefits included in the agreement. For example, gifts provided to employees or the provision of staff entertainment are generally liable to tax and NIC (see the Gifts and Entertainment ― staff guidance notes) but are provided by employers as a perk. The popularity of such gifts and events with the employees would therefore be reduced if they had to pay tax on the benefit. The PSA passes the tax and NIC liability on these benefits to the employer so the employee receives the benefit free of any tax or NIC.

Using a PSA can save significant administrative costs as there is no need to report minor

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