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HMRC internal manual

PAYE Settlement Agreements

HM Revenue & Customs
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Dealing With PAYE Settlement Agreements

When you and the employer have agreed the scope of a proposed PSA the Regulations require the details of the agreement are set out in writing. A form P626 should be used for that purpose. The result will be a PAYE Settlement Agreement.

Take the following action

  • complete form P626

    • set out the specific items to be covered, for example, occasional use of a company holiday flat
  • issue two copies of the PSA to the employer
  • ask the employer to sign and return both copies
  • create an ECS/PSA record to show the proposed items see PSA6020.

P626 returned by employer

On receipt of the signed P626 from the employer

  • arrange for both copies of the form to be signed by the PSA Authorising Officer. See PSA2050

    • the Authorising Officer must be an Officer or above
  • then return one copy of the form to the employer with a covering letter confirming that the agreement is in place
  • notify the employer of the date by which the following details must be provided

    • the value of the items included in the agreementon which tax and Class 1B NICs is chargeable
    • the total number of employees in receipt of each specified amount
    • the number of those employees chargeable to each specified rate of tax
    • a computation of tax and Class 1B NICs calculated. You should enclose the form PSA1 for the employer to use.
  • keep the remaining copy in the employer’s file
  • BF your records to be reviewed at the notified date
  • update the ECS record to show

    • which items have been included or rejected, and
    • the date the P626 signed by the Authorised Officer was sent back to the employer, see PSA6030

On receipt of a full response by the employer follow the guidance at PSA2040 

If no reply is received by the notified date

  • contact the employer to remind them what details are required, review the case after one month
  • if there is no reply after one reminder you must consider making a formal determination under Regulation 110 based on estimated figures, follow the guidance at PSA4020 onwards.

P626 not returned by employer

If you do not receive the signed P626 from the employer before the 6 July following the end of the tax year to which it applies, no PSA will exist for that tax year.

The employer must operate PAYE as normal on all relevant benefits and expenses for that tax year and include them on forms P35, P14, P9D, P11D and P11D(b) as required.

Normal compliance action and penalties should be considered if

  • there is a failure to submit the appropriate returns, or
  • for submitting incorrect returns.