If you are a business owner, you are likely familiar with Pay As You Earn (PAYE) taxes. PAYE is a system of collecting income tax and National Insurance contributions (NICs) from employees’ pay as they earn it. HM Revenue and Customs (HMRC) collects these taxes from the employer. However, there are times when a PAYE settlement agreement (PSA) may be necessary. In this article, we will discuss what a PSA is and the process of paying it.
What is a PAYE Settlement Agreement (PSA)?
A PAYE settlement agreement is a voluntary agreement between an employer and HMRC. It allows the employer to pay tax and NICs on some or all the benefits and expenses that they provide to their employees. A PSA is usually necessary when an employer provides non-cash benefits or expenses that do not have a specific exemption or exclusion from tax.
The PSA is a way for employers to simplify the process of calculating and reporting tax and NICs. It is especially useful for expenses or benefits that are shared by employees, such as work-related travel or company-wide events. It can also include expenses and benefits that are not taxable, but the employer chooses to include them to provide certainty and avoid disputes.
How to Pay a PAYE Settlement Agreement?
If you have a PSA, you must pay HMRC by the following dates:
– 19 October for paper returns
– 22 October for electronic returns
Payments can be made by cheque or bank transfer. Cheques should be made payable to “HM Revenue and Customs only” followed by the PSA reference number. Bank transfers can be made using the PSA reference number as the payment reference.
It is essential to ensure that you pay the correct amount on time, as late payments may result in interest and penalties.
Conclusion
A PAYE Settlement Agreement is a useful tool for simplifying the process of calculating and reporting tax and National Insurance contributions. It is particularly helpful for expenses and benefits that are shared by employees or expenses that do not have a specific exemption or exclusion from tax.
As an employer, it is essential to ensure that you pay your PSA on time and for the correct amount. Failure to do so may result in interest and penalties. If you are unsure about the process, you should seek professional advice from an accountant or tax specialist.