As an employer, you may find yourself in a situation where you need to settle the tax liability of your employees through a Paye Settlement Agreement (PSA). This agreement allows you to pay the tax and National Insurance on behalf of your employees for expenses or benefits that are not covered by standard Pay As You Earn (PAYE) deductions. However, to ensure that your PSA is successful, it is essential to follow these guidelines:
1. Identify the correct expenses and benefits
The first step in preparing your PSA is to identify the expenses and benefits that are eligible. These may include expenses for travel, subsistence, or entertainment, as well as non-cash benefits such as company cars or health insurance. It is essential to ensure that all items included are valid and that the expenses are genuine and necessary.
2. Calculate the tax and National Insurance
Once you have identified the expenses and benefits, you must calculate the tax and National Insurance (NI) owed. This can be a complex process, so it`s essential to check that you`re using the correct calculations and making the correct deductions.
3. Agree on the PSA with HMRC
Before you can start paying for the tax and NI, you need to agree on the PSA with HMRC. This involves submitting a formal application detailing the expenses and benefits you want to include in the agreement. You will also need to provide evidence to support your claim, such as receipts or invoices.
4. Pay the settlement
Once the PSA has been agreed, you can start paying for the tax and NI owed on behalf of your employees. This can be done either through a lump-sum payment or on an ongoing basis, depending on the terms of the agreement. It is essential to keep accurate records of all payments made to ensure that you stay within the agreed-upon amount.
5. Review and renew the PSA annually
It is important to remember that your PSA is only valid for a year, after which you will need to renew and review it with HMRC. During this process, you will need to update your expenses and benefits and ensure that the tax and NI calculations are accurate.
In conclusion, a Paye Settlement Agreement can be a valuable tool for employers to settle the tax liability of their employees. By following these guidelines, you can ensure that your PSA is successful and avoid any potential penalties for incorrect calculations or misidentified expenses and benefits.