As always, at Osome our goal is to make these tax subjects easy to understand for the average person. We’re not trying to talk to tax advisors and accountants, we’re talking to you - someone within an organisation that needs to understand these issues, but tax language might not be your mother tongue.
So, with that in mind, let’s take a simple look into PSA liability and when it might apply to your business.
Here’s the definition straight from HMRC:
“A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance (NI) due on minor, irregular or impracticable expenses or benefits for your employees.”
Simple, right? Very simple if you know what they mean by minor, irregular or impracticable expenses or benefits. But what if your version of these differs from mine?
A Simple Explanation of PSA Liability
A PSA liability is an agreement between you and HMRC. In it, you agree to make an annual payment to the government to cover the type of expenses and benefits that fall outside of normal expenses and benefits (or are hard to attribute to a single employee).
These are the monetary or in-kind perks that won’t fit into payroll or wouldn’t be taxed to an employee on their P11D (an employee’s expenses and benefits form).
What Are Minor, Irregular or Impracticable Expenses and Benefits?
There is no definitive list. Otherwise, we’d lay it out here in black and white. This is because there are expense and benefit items now that didn’t exist a few years ago, and there’ll be new ones in the future.
Take the use of cryptocurrency, for example, not mentioned by HMRC, but is now being featured more frequently by international companies. But that’s a subject for another time.
Here’s the simple definition of minor, irregular or impracticable expenses and benefits, with a few common examples.
Minor - A menagerie of items with, despite being called “minor”, no ceiling to their value. Whether an expense is minor or not is determined by local tax officers.
Minor expenses examples are:
- Small gifts
- Incentive awards schemes (e.g. salesperson of the year)
- Redeemable vouchers that have no cash value
- One-off staff entertainment costs such as tickets to a sporting event
- Telephone bills
- While travelling overnight, expenses that aren’t for business and are over the daily limit of £5 per night in the UK and £10 per night travelling outside the UK
- Gym memberships
Irregular - Anything that is paid during the year on a non-regular basis (for instance not weekly, bi-weekly or monthly) and isn’t in your employee's contract. An irregular expense could be:
- The cost of going to a conference in a different country
- A spouse’s expenses who is travelling with an employee to a different country
- Expenses for relocating that exceed the £8,000 tax-free ceiling
- The use of property owned by a company such as a house or flat
Impracticable - These are benefits or expenses that have a value that is attributed jointly to a number of your employees. These are hard to divide up between the individual employees, so they’re just grouped together. Impracticable expenses include:
- Shared vehicles
- Staff entertainment (unless it’s exempt from tax or NI)
- Expenses for your employee’s personal care such as personal trainers, hairdressers, dieticians, etc.
What Can’t Be Included in a PSA?
The answer is the most common expenses in the daily operation of the business or the common benefits people receive for hitting their targets. Here are a few of the most common ones:
- Company cars
- Employee salaries
- Employee loans
- Round sum allowances - these are monies paid to an employee that is given regardless of how they spend it
How Do You Get a PSA?
If you want a PSA you have to apply to HMRC in writing stating the expenses and benefits in question and why you believe they fall into this category. HMRC need to then agree, at which point they’ll provide you with a P626 form for you to sign. When they authorise this…you have your PSA.
The deadline for applying for a PSA is July 5th of the following tax year.
Will I get it wrong?
Don’t worry, HMRC isn’t trying to catch you out, the parameters above can be open to interpretation within reason. And if you’re not sure? Double check it with someone knowledgeable so you can sleep at night.
We’d always suggest getting advice from a professional accountant that advises companies on PSAs every day.
That’s where we can help. If you want advice on this issue or you just want an easy solution to help you with all of your accounting online, we’d love to chat.