Answers · UK 2025/26
What is an HMRC PAYE Settlement Agreement (PSA)?
A PSA is a formal agreement between an employer and HMRC that lets the employer pay the tax and NI on certain minor or irregular employee benefits in a single annual payment. It avoids the need to put those benefits through payroll or P11Ds. Employers must apply by 5 July following the tax year.
Full answer
A PAYE Settlement Agreement (PSA) simplifies the administration of employee benefits that are minor, irregular or impractical to put through the normal payroll or P11D process. **What can go into a PSA?** - Staff entertaining (above the £150/head annual function exemption). - Small gifts and vouchers (above the trivial benefits exemption of £50). - Incentive awards. - Irregular or one-off benefits (e.g. a taxi home during an emergency, a team-building event). - Relocation expenses above the £8,000 exemption. **What cannot go into a PSA?** - Regular cash payments. - Benefits for which a statutory exemption already applies (e.g. pension contributions, cycle-to-work scheme). - Items already processed through payroll or on P11Ds. - Anything so significant it would be inappropriate for the employer to pay the tax. **How the tax is calculated** The employer calculates the grossed-up cost of all PSA items. 'Grossing up' converts the net benefit into the gross income that would have produced that net amount after tax. For a basic-rate employee, divide by 0.8; for a higher-rate employee, divide by 0.6. Employer Class 1B NI (13.8% -- based on the pre-2025 employer NI rate for PSA purposes) is then added on the grossed-up amount. **Process** 1. Apply to HMRC for a PSA by 5 July following the end of the tax year (so 5 July 2027 for 2026/27). 2. Calculate tax and NI due. 3. Pay HMRC by 22 October (if paying electronically) following the end of the tax year. **Benefits for employers** Administration is consolidated into one annual calculation and payment. Employees are protected from unexpected tax bills on minor benefits. HMRC audits are simplified because PSA items are declared transparently.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.