PAYE Settlement Agreement Updates
April 2018 changes
PAYE Settlement Agreements (PSA) are a way for employers to deal with the tax for employees on minor, irregular, or hard to quantify benefits in an efficient manner. For example, they can cover staff prizes or awards, or non-allowable staff entertaining.
Following consultation in 2016, to which ATT responded (see here), from April 2018 there will be some changes to the system:
- It will no longer be necessary to agree with HMRC what expenses and benefits should be covered by the PSA in advance of the tax year, and
- It will be possible to make PSA submissions and payments online.
HMRC also intend to improve their PSA guidance.
HMRC research into simplification of PSAs
As part of the above simplifications, HMRC are conducting research with businesses which have previously submitted a PSA either for themselves or on behalf of their clients. The research will inform a new project to simplify the PSA process and guidance which HMRC will provide in time for the 2018/19 tax year. If you are interested in becoming involved, there are more details here.
Dynamic Coding and Bonuses
As noted in our July edition, dynamic coding came into effect on 2 July 2017. The purpose of the new system is to use RTI information to adjust tax codes during the year to reduce the number of employees with over or under-payments at the end of the tax year. Where an over or under-payment remains inevitable, dynamic coding should enable the amount to be reduced.
When an in-year adjustment is required – perhaps because a new benefit is being provided by the employer –the system needs to estimate the employee’s income for the whole tax year as part of the calculation. It does this by taking details of earnings filed to date, and pro-rating these to a whole year. Where an employee has been paid a bonus in this period it is possible for the estimate to be too high, as the system cannot discriminate between regular payments of salary and irregular bonuses. The over-estimate of earnings can result in the in-year adjustment being too high, creating an over-payment.
If an employee is concerned about a new coding notice and thinks that it has been based on too large an estimate of earnings because of a bonus or otherwise, they can contact HMRC through their Personal Tax Account, or by telephone, to provide a more realistic estimate.
A longer article on this topic can be found on our technical pages here.
Late Filing Penalties for PAYE
HMRC have confirmed in their latest Employer Bulletin, published on 16 August 2017 that they will continue their risk-based approach to charging penalties for the late filing of a Full Payment Submission (FPS) or Employer Payment Summary (EPS) in the 2017-18 tax year. This means that rather than issuing penalties automatically for late filing, the penalties are risk assessed for persistent late filers. The first penalties for late filing from April 2017 will be charged in September 2017.
The concession that a penalty is not charged if an FPS or EPS is filed late but within three days of the due date, will be retained. HMRC emphasise that this is not intended to be a concession to extend the statutory filing date. Employers who persistently take those extra three days for filing will be reviewed and considered for a penalty.
Penalties for late filing are linked to the number of employees the employer has. The penalty starts at £100 a month for late filing where there are one to nine employees, and rises to £400 a month for 250 or more employees. Further penalties are charged for those filing over three months late.