Overview of PAYE Settlement Agreements: The Agreement
The basic agreement
There is no specified format for an agreement, but it must be
- in writing
- signed and dated by the employer, or their representative
- signed and dated by an authorised officer of HMRC
- Which benefits and/or expenses are included, see PSA1050
- For which employees
- The tax year to which it first relates
- How the tax is to be calculated, see PSA1160, and
- The date that tax and Class 1B NICs are due
Form P626 will normally be used when making an agreement and includes all the elements listed above.
When an Employer enters into a PSA, the agreement will be enduring. The items included in the first PSA will be the basis for any agreements in later years, until the employer or HMRC cancels the agreement or the employer submits a revised agreement.
For guidance on making an agreement, see PSA2030.
An agreement can be made before, during or after the tax year but before the 6 July following the end of the tax year for which it first applies.
The 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, but payments of tax and Class 1B NICs can be made at any time after the agreement is signed and returned to HMRC.
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 PSA2060. There is no objection to a revised agreement being made at any time up to 6 July following the relevant tax 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
If a revised agreement is submitted, it will become the enduring agreement.
Employers and employees records
Once an item is included in a PSA for a particular tax year it is simpler for both employers and employees because
- employers do not have to operate PAYE on PSA items for that year, or include them in Real Time Information submissions or on form P11D for benefits in kind.
Note. The employer must retain records of payments and costs together with sufficient information for the calculation of the employees’ marginal rate of tax. See PSA1120
- employees do not need to include PSA items in their returns for the tax year. PSA1130 explains what employers should tell employees about their PSA.