Overview of PAYE Settlement Agreements
The Basic Agreement
There is no specified format for agreements, but they must all be
- in writing
- signed by the employer, or their representative
- signed by an Officer or above
- Which benefits and/or expenses are included, see PSA1050
- For which employees
- The year to which they relate
- How the tax is to be calculated, see PSA1160, and
- The date that tax and NIC is due
Form P626 will normally be used when making an agreement, this form includes all the elements listed above.
For guidance on making an agreement, see PSA2030.
Agreements can be made before, during or after the tax year but before the following 6 July for which they apply.
Payments of tax and Class 1B NICs can be made at any time after the agreement is signed. The final due date for payment is 19 October (or 22 October where paid by an approved electronic payment method) following the end of the relevant tax year.
Late payment of tax and Class 1B NICs carry interest. See PSA1180.
Changing an Agreement
An employer may change what items are included in an agreement during the year see PSA2070. There is no objection to a revised agreement being made at any time up to 6 July following the relevant year, but no agreement can include
- items that have already been (or should have been) paid under deduction of tax; or
- items that are already included in an employee’s tax code for the year in question
Employers and Employees Records
Once an item is included in a PSA for a particular tax year it will simplify matters for both employers and employees because
- employers do not have to operate PAYE on PSA items for that year, or include them on forms P35, P14, P9D or P11D
Note. Employer must retain records of payments and costs together with sufficient information for the calculation of the employees’ marginal rate. See PSA1120
- employees do not need to include PSA items in their returns for the year. PSA1130 explains what employers should tell employees about their PSA.