Simplifying the PAYE Settlement Agreement (PSA) Process
HM Revenue & Customs (HMRC) have issued a consultation document on ways of improving the current burdensome PSA process. There is no current intention to extend the scope of PSA’s, the most common items included in a PSA are Christmas parties, working lunches, team building exercises and staff incentive awards.
The government accepts that completing a PSA annually introduces delay and uncertainty to the system and that the requirements for the benefit to be minor, irregular, and the deduction of tax and apportionment of the benefit to be impractical are unclear as to interpretation. Usually class 1A National Insurance Contributions (NICs) are payable on benefits. When the benefits are agreed into a PSA class 1B NICs are paid. The timing of the completion of the PSA can cause there to be different treatments of the same benefit for tax and NIC purposes.
The proposals for dealing with these issues are:-
- Remove the requirement for upfront agreement
Employers would assess whether items are eligible for inclusion in a PSA return
2. Considering a digital solution
The Government will explore whether it would be cost effective to digitalise the PSA return and whether it is feasible to align the PSA calculation and payment dates with the P11D/P11D(B) deadlines i.e. calculations due by 6 July and payments due 19/22 July following the tax year.
3. Handling differences of opinion
Consideration is being given to providing employers with a warning if HMRC disagree with an item included in a PSA in good faith.
4. Determining what can be included in a PSA
- “Minor” Criteria
The proposal is to remove ‘minor’ from the PSA criteria
- “Irregular” Criteria
The proposal is that irregular should be defined as:
- be considered on a tax year basis.
- not occur in any pattern.
- excludes items which the employer has a contractual right to.
- “Impractical” Criteria
There are currently situations where the benefit is:-
- Paid in circumstances where deductions of tax by reference to the tax tables is impracticable; or
- Shared between employees so that apportionment of the benefit is impractical.
A further clarification is to be added
- The provision of a benefit is not to be considered to merit impractical criteria solely because of limitations with an employer’s software or because there is a presentational awkwardness to taxing the benefit via PAYE or requesting a P11D.
The consultation is due to close on 18 October 2016.
Whilst we do not know when the proposed changes are likely to come into effect employers will need to think about how they can adapt to all of the changes the Government are in the process of introducing.
For further information please contact Nick Bustin, Director of Employment Tax, Email: firstname.lastname@example.org or Tele: 020 7969 5576 or your usual haysmacintyre contact.