Simplifying the PSA process

HMRC published a consultation in August 2016 on proposals to ‘simplify’ the process employers’ use for agreeing and reporting items to them through a PAYE Settlement Agreement (PSA).

These proposals included:

  • Removing the requirement to agree the items in a PSA with HMRC;
  • Introducing a digital PSA return process;
  • Aligning the PSA payment date with the Class 1A NICs payment deadline;
  • Removal of ‘minor’ from the PSA criteria; and
  • New guidance on interpreting the ‘irregular’ and ‘impracticable’ categories.

ATT agreed that the new proposals should provide significant simplification, especially as it will remove the differing treatment that can currently exists between the NIC and tax treatment depending on whether the benefit or expense is provided at a point in the year before or after an PSA has been agreed with HMRC.

ATT also asked HMRC to consider introducing an advance assurance facility that could be used on a voluntary basis by employers needing further guidance on particular expense items.

ATT agreed that giving a warning to employers where an item has been included in a PSA in error rather than immediately penalising the employer would be fair and proportionate. ATT would not want to see any employers being put into a penalty position because of a move away from clarifying the eligible PSA items upfront.

ATT agreed that a digital return could provide efficiencies and cost savings for both employers and HMRC. However, it also pointed out in its response that a large proportion of the 30,000 employers submitting PSAs (as identified by HMRC) are likely to have agents who prepare and administer the PSA on their behalf. Therefore, it will be extremely important that any new digital process is fully accessible for agents.

As regards the proposal to align the submission date for PSAs with that of the P11D process (i.e. a deadline of 6 July following the end of the tax year), ATT commented that whilst it understood HMRC’s desire to streamline the number of deadlines employers must meet, and acknowledged that there will be some employers who do complete both the P11Ds and the PSA at the same time, there will be others for whom this will be a detrimental change. Therefore, an impact assessment of the implications for these employers should be undertaken.

ATT did not agree with the proposal to remove ‘minor’ BIKs from the PSA criteria because of the new “trivial” BIK exemption. There are items which are ‘minor’ which would not fall within the “trivial” BIK exemption. ATT added that the definition of what meets the ‘impracticable’ criteria needs to be drawn more widely and only if this is done can any consideration be made for removing the ‘minor’ criteria. The example given was the cost of an annual staff function that falls outside of the usual exemption. If there is an attendance list then it is not ‘impracticable’ to divide that cost between the number of employees who attended. That cost per head, though, might only come to £30. Without the retention of the ‘minor’ category or a widening of the ‘impracticable’ criteria, the employer would not be able to include the costs of that function in a PSA and each employee who attended would have to be taxed on it. This would be detrimental to the employer-employee relationship and staff morale.

ATT did not think that there should be an exception or cap in respect of office holders, nor that any new safeguards were needed to prevent abuse of PSAs.

The government’s response is expected later this year. 

Read our response here