PAYE Settlement Agreements (PSAs)

Q: 1. PAYE Settlement Agreements

What are PSAs ? A PSA is a voluntary arrangement between an employer and HMRC that allows the employer to settle, on behalf of its employees, the income tax and NICs due on certain benefits and expenses. PSAs provide an alternative to reporting those items through payroll or on through the P11D benefit and expenses reporting process, with the employer paying the tax and Class 1B NICs instead of the employee being charged through payroll. PSAs are provided for in legislation, primarily under sections 703 to 705 of the Income Tax (Earnings and Pensions) Act 2003, with associated provision for Class 1B NICs under social security legislation. HMRC publishes guidance explaining how PSAs work in practice, including the types of benefits and expenses that may be suitable for inclusion, how tax and Class 1B NICs are calculated, and the process for agreeing and reporting a PSA .

Question 1

Summary

Accepted Answer

Subject of this call for evidence

This call for evidence seeks to gather information on how Pay As You Earn (PAYE) Settlement Agreements (PSAs) are used in practice. PSAs allow employers to settle the income tax and Class 1B National Insurance contributions (NICs) due on certain expenses and benefits on behalf of their employees.

Scope of this call for evidence

This call for evidence invites views on the practical operation of PSAs. It is intended to build understanding of how organisations decide what to include, how PSAs are used alongside other reporting arrangements, and the factors that influence how PSAs are applied in practice.

Who should read this

The government welcomes views from anyone with experience of PSA arrangements, including:

employers who operate PSAs or may consider doing so in the future
payroll agents, advisers and representative bodies
payroll and HR software providers
organisations that use PSAs for particular events, reward arrangements or operational needs

Duration

The call for evidence will run for 12 weeks from 23 June 2026 to 15 September 2026.

Lead official

The lead official is M Stephenson of HM Revenue and Customs (HMRC).

How to respond or enquire about this consultation

M Stephenson DNO
Strategy and Policy
5th Floor
HMRC BP5001
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ

payeconsultations@hmrc.gov.uk.

Partial responses are welcome, and respondents may answer the questions that are only relevant to their experience.

After the call for evidence

Responses will be reviewed and a summary of responses will be published later in the year.

Question 2

1. PAYE Settlement Agreements

Accepted Answer

What are PSAs?

A PSA is a voluntary arrangement between an employer and HMRC that allows the employer to settle, on behalf of its employees, the income tax and NICs due on certain benefits and expenses. PSAs provide an alternative to reporting those items through payroll or on through the P11D benefit and expenses reporting process, with the employer paying the tax and Class 1B NICs instead of the employee being charged through payroll.

PSAs are provided for in legislation, primarily under sections 703 to 705 of the Income Tax (Earnings and Pensions) Act 2003, with associated provision for Class 1B NICs under social security legislation.

HMRC publishes guidance explaining how PSAs work in practice, including the types of benefits and expenses that may be suitable for inclusion, how tax and Class 1B NICs are calculated, and the process for agreeing and reporting a PSA.

Question 3

2. Clarifying the purpose and scope of PSAs

Accepted Answer

The PSA framework operates alongside PAYE payroll processes and wider expenses and benefits reporting arrangements (P11D). This call for evidence seeks to understand how PSAs are currently used in practice, including how organisations apply the existing rules alongside current payroll and reporting systems.

PSAs are designed to be used for low value items, irregular or non-routine payments, or benefits that are not practicable to process through payroll or report through P11D. Their intent is to provide a simplified means of settling tax and NICs on certain benefits and expenses.

Initial engagement indicates that employers may apply the PSA rules in a range of ways, reflecting differences in organisational structures, systems and operational circumstances. The government therefore welcomes evidence on how the existing rules are interpreted and applied in practice.

As a general principle, where both the individual receiving a benefit and the associated cost can be identified, the benefit should be capable of being reported through our standard PAYE reporting processes for expenses and benefits. These are the submission of forms P11D or alternatively through voluntarily payrolling benefits in kind where employers have registered to do so, rather than being included within a PSA.

To support clarity, this call for evidence sets out examples of items that may fall within, or outside, the scope of a PSA. These examples are illustrative only, are not exhaustive, and are intended to show how PSA criteria may apply in practice. This call for evidence does not ask for evidence about how benefits and expenses are subject to tax, the rules for taxing benefits and expenses are not within the scope of this call for evidence. The examples which follow all reflect benefits which are taxable under current tax legislation.

Examples of benefits which HMRC consider might be included in a PSA

Staff event where lunch is provided

An employer holds an occasional staff event and provides a buffet lunch for around 250 employees. The catering is arranged as a single service, with food available throughout the event and employees helping themselves.

While the employer knows the overall cost of the catering, there is no practical way of identifying how much any one employee has consumed. Some employees eat very little, others more, and no records are kept of individual consumption.

As a result, it would be impracticable to calculate and report the precise value of the benefit provided to each employee through the standard PAYE process. This is an example of a situation where the employer may choose to include within a PSA.

Shared transportation

An employer arranges transport for employees following a work event, for example by booking taxis to take staff home at the end of the evening. To manage this efficiently, journeys are shared between employees and charged on a per journey basis rather than per person.

Although the employer knows the overall cost of providing the transport, it is not possible to reliably identify the cost attributable to each individual employee. Different employees share different journeys, and the charge does not reflect the number of people in each taxi.

In these circumstances, it would be impracticable to allocate and report the benefit provided to each employee through the standard PAYE process. This is an example of a situation where the employer may choose to include within a PSA.

Examples of benefits which HMRC consider should not be included in a PSA

Medical cover provided to employees

An employer offers private medical cover as part of its standard benefits package. Each eligible employee is enrolled individually, receives their own policy documentation, and can see the value of the benefit on their annual benefits statement. The employer knows exactly who receives the cover and what it costs for each employee, as premiums are set per person and recorded through payroll. Because both the individual recipients and the value of the benefit are clear, this is not a benefit where there is any practical difficulty in reporting. This is the kind of benefit that can be straightforwardly dealt with through standard PAYE reporting processes, rather than being included within a PSA.

Chauffeur driven car or dedicated transport provided to an employee

An employer provides a chauffeur driven car for a senior employee to use when travelling to meetings. The arrangement is set up specifically for that individual, with journeys booked on their behalf and charged directly to the employer. The transport is not shared, and there is no uncertainty about who uses the service or where the cost falls. Each journey relates to one named employee and can be costed accordingly. In a situation like this, there is no practical barrier to identifying or valuing the benefit. As a result, it can be reported for that employee through the standard PAYE expenses and benefits process, rather than being included within a PSA.

Employer provided loan to an employee

An employee approaches their employer for a loan to deal with an unexpected personal expense. The employer agrees, and the loan is set up for that individual, with the amount and repayment arrangements agreed at the start. Because the loan is provided on terms that result in a taxable benefit, that benefit falls directly on the employee who received the loan. There is no ambiguity about who has benefited, and the value of the benefit is clear from the arrangement itself. In this case, there is no practical difficulty in identifying or dealing with the taxable benefit. It can be reported through the standard PAYE expenses and benefits process, rather than being included within a PSA.

Question 4

3. About you (respondent profiling)

Accepted Answer

This section collects contextual information about respondents to help HMRC understand the diversity of organisations engaging with PSAs. This will support analysis by sector, size, and operational model, ensuring that any themes identified are interpreted appropriately and proportionately.

Question 1: What type of organisation are you (select one):

employer
agent
payroll provider
representative body
software provider
other (please specify)

Question 2: Organisation size or client base (select one):

If you are an employer:

micro (fewer than 10 employees)
small (10 to 49 employees)
medium (50 to 249 employees)
large (250+ employees)
group or multi entity organisation

If you are an agent, payroll provider, or representative body — approximate number of employer clients you support with PSA related services:

1 to 10
11 to 50
51 to 250
250+

Question 3: Sectors (select all that apply):

public sector
private sector
charity or third sector
financial services
retail
hospitality
manufacturing
professional services
technology or digital
health and social care
education
other (please specify)

Question 4: Your role in PSA reporting or processing (select all that apply):

authorising officer
payroll lead
finance lead
tax lead
agent
adviser or consultant
other (please specify)

Question 5: Do you currently have a PSA agreement with HMRC?

yes — active
yes — but nil return
no — previously had
no — never had

If yes, how many years has the current PSA been in place?

Question 5

4. How PSAs are used in practise

Accepted Answer

This section seeks to understand the types of expenses and benefits included within PSAs and the reasons organisations use this reporting route. The evidence will help HMRC assess whether PSAs are used as intended.

Question 6: Over the past 5 years, how, has the volume or types of expenses and benefits included in your PSA changed? Please describe the key drivers behind any changes, such as developments in business operations, workforce patterns, administrative systems, costs, guidance, or HMRC engagement.

Question 6

5. How organisations decide what to include in a PSA

Accepted Answer

This section looks at how respondents decide what can be treated as minor, irregular, or impracticable to report through normal routes and therefore suitable for a PSA.

Question 7: How clear do you find the boundary between benefits that can be treated as trivial benefits and those that can be included in a PSA?

Question 8: When a benefit cannot be treated as a trivial benefit, which aspects of the rules most commonly lead you to conclude that? For example, is it the £50 limit, the type of benefit or the reason it is being given?

Question 9: How do you decide whether a benefit or expense should be reported through a PSA rather than the standard PAYE reporting routes? This may include consideration of whether items are minor, irregular, or impracticable to report, as well as any operational, data, timing, system, or organisational barriers, and their scale where possible.

Question 7

6. Managing, operating and agreeing PSA arrangements in practice

Accepted Answer

This section explores how PSAs operate in practice for employers, focusing on the administrative effort involved in establishing, updating and submitting a PSA, as well as how PSA contracts are agreed, amended and maintained over time.

Although PSAs are enduring agreements, employers may need to add or remove items during the year, include benefits that apply only in a single year, or respond to HMRC reviews and checks. These activities could affect employers’ planning, internal approvals, resourcing and decision making. HMRC therefore want to understand where application, amendment or review processes work well, where they create uncertainty or administrative burden, and whether current PSA contract arrangements support effective and proportionate administration.

We are also interested in whether the current PSA contract arrangements remain the most appropriate mechanism for operating PSAs, or whether alternative approaches could better support compliance while reducing administrative complexity.

The government is interested in whether current arrangements for agreeing, maintaining and amending PSAs affect your organisation’s planning and decision making.

Question 10: Could you include examples of where timings work well and where they create challenge? This may include experiences of adding or removing items, dealing with HMRC reviews or queries, and managing PSAs across years where benefits vary.

Question 11: What time, resources or costs are involved for your organisation in establishing a new PSA or amending an existing PSA? Where relevant, describe the main activities involved (for example identifying benefits, using advisers, or engaging with HMRC), and whether these tend to be one-off or recurring.

Question 12: Some stakeholders have told HMRC that a definitive list of what can be included in PSAs would be helpful. Would this support more consistent application of the rules? Please explain why or why not.

Question 13: What time, resources or costs are involved in operating the annual PSA calculation and submission cycle?

Question 14: Are there aspects of the current PSA contract arrangements, amendment process or calculations that could benefit from change? If so, which aspects, and why?

Question 15: Can you think of an alternative approach without a contract to better support compliance and reduce administrative burdens? For example, would a system be practical where an employer elects to apply the PSA rules where certain criteria are met and makes a declaration of compliance when submitting calculations?

Question 8

7. PSA calculations

Accepted Answer

This section seeks evidence on how employers calculate PSA liabilities in practice, including how tax and NICs are estimated using the information available to them.

HMRC guidance explains that, for PSA calculation purposes, employees should be apportioned according to their marginal rate of tax. Where an employee has no PAYE income tax liability with the employer, the guidance states that they should be treated as liable at their first chargeable rate of tax. When an employer pays a benefit through a PSA, they gross up the tax and Class 1B National Insurance because the employer is paying these on the employee’s behalf.

Question 16: Describe the approach you use, and the factors you consider, when providing a minor, irregular or impractical to report benefit to an employee who does not have an employment income tax liability.

Question 17: Are there any specific circumstances where you consider that HMRC’s approach to applying the first chargeable rate of income tax to PSA items does not work as intended? If so, please describe the circumstances and explain why.

Question 18: Where a single category of benefits is provided to employees in different tax bands (for example, basic, higher, additional, Scottish or Welsh rates), how are those items allocated across the relevant bands? What method do you use in practice?

Question 19: What gross up methodology do you apply? For example, do you apply a single gross up rate across all items (such as using the highest applicable marginal tax rate), or do you apply different gross up rates for different groups of employees based on their tax bands? Please describe your approach, including any assumptions or calculations you rely on.

Question 20: How do you approach PSA calculations in cases where an employee has no PAYE income tax liability arising from employment with this employer? Please describe the approach you use and the factors you consider.

Question 21: What types of HMRC guidance or worked examples do you find most useful in helping you prepare PSA calculations?

Question 9

8. Impacts across different types of employers

Accepted Answer

Understanding how PSA rules and processes affect different types of employers is essential to ensuring any future reforms are fair and proportionate. Organisations vary widely in size, structure, and administrative capacity. These differences may influence how they experience the PSA regime in practice. This section therefore seeks evidence on whether impacts differ for Small and Medium-sized Enterprises (SMEs), large employers, or particular workforce groups, and what mitigations could help ensure that any future changes work effectively across diverse operational models.

Question 22: Based on your experience or professional perspective, do the impacts of PSA policy, rules, or processes differ between SMEs and large employers, or for specific workforce groups? Please include any examples or evidence.

Question 23: Do you have any additional comments or insights on PSAs, including experiences or considerations not covered by the questions above that you would like to share?

Question 10

9. Future engagement

Accepted Answer

HMRC intends this call for evidence to be the main mechanism for gathering evidence on the operation of PSAs. In some cases, and depending on responses received, HMRC may contact respondents to seek clarification on specific points where this would assist accurate interpretation of the evidence.

Question 24: If necessary, would you be willing to be contacted for limited follow up to clarify specific aspects of your response?

yes
no

If yes, please provide contact details.

Question 11

10. Summary of consultation questions

Accepted Answer