Self-certification of expenses and benefits included on the PAYE Settlement Agreement?

Fri 12 Aug 2016

HMRC has this week (9 August) issued a consultation document which sets out the proposals to reform the PAYE Settlement Agreement (PSA) process to:

make it simpler for both employers and HMRC to administer PSAs; and to
provide greater clarity about what can and can’t be included in a PSA.

This was a result of the recommendations made by the Office of Tax Simplification (OTS).

It should be noted that the Government is not proposing to extend the scope of what can be included in a PSA as part of this consultation but it has said that this will be kept under review.

What’s a PSA?

A PSA was introduced in the 1990s to reduce the administrative burden on employers and HMRC. It is an annual agreement to be agreed with HMRC by 6 July after the tax year, allowing the employer to settle the income tax and NIC due on certain benefits and expenses which are small, or irregular or impractical to apportion the benefit between employees on behalf of their employees (for example, staff entertaining costs). The income tax and Class 1 B NIC due under a PSA is calculated on a grossed up basis, with the calculations to be submitted to HMRC by 31 July (or 31 August as noted on the PSA itself) and the payment due is to be made to HMRC by 22 October after the tax year to which the PSA relates.

What’s the issue?

In its consultation document HMRC state that it checks every PSA before the payments are made by Employers and where items of expenses and benefits are not ‘agreed’ as part of the PSA, then HMRC and the employer will typically enter into negotiations to settle the liabilities due, outside of the PSA. HMRC recognises that this achieves largely the right results but says that the current process involves ‘delay’, ‘bureaucracy’ and ‘complexity’ whilst Employers are proactively trying to discharge their liabilities in the right way.

This process furthermore, does not align itself with the general move towards more self-certification.

There is also an appetite to review the payment deadlines, aligning the payment date of PSAs with other deadlines.

What’s the proposal?

A summary of the proposal is set out below:

Remove the requirement of the upfront agreement
Consider a digital solution
Aligning the PSA payment deadline date with the Class 1A NIC payment date
Re-define what is meant be ‘minor’, ‘irregular’ and ‘impractical’
HMRC is open to views on how to handle differences of opinion where employers report items which HMRC later disagrees meet the criteria for inclusion

What do you need to do now?

Mazars will be responding to HMRC’s consultation document on behalf of our clients. We would like to hear your views on the PAYE Settlement Agreement consulation – please take a few moments to fill out our survey.

The consultation closes on 18 October 2016. For more information about employment taxes, visit our website.