The Association of Taxation Technicians (ATT) welcomes HMRC’s proposed simplification for PAYE Settlement Agreements (PSAs). PSAs simplify the taxation of some benefits-in-kind for employers, and allow employees to receive those benefits free of tax. But the ATT is calling for clear guidance on the changes, which are expected to take effect in just five weeks’ time.
Unless a benefit qualifies as trivial1 or is the subject of a specific exemption, employees and employers usually need to pay tax on benefits-in-kind provided by the employer. Where the benefit is taxable but is minor, irregular, or difficult to quantify, the employer can enter into a PSA with HMRC. This provides an administrative simplification for the employer and, since the employer then pays all of the tax relating to the benefit, means that the employee can enjoy the benefit free of tax.
Many employers already find PSAs useful2 and the ATT expects this simplification will encourage more of them to use this route to deal with eligible benefits-in-kind. Examples of benefits that could be included in a PSA are prizes, incentives or awards, staff entertaining, gym subscriptions and small gifts not otherwise covered by an exemption.
Currently, an employer needs to renew their PSA with HMRC each year. HMRC have issued draft legislation to remove that requirement from April 2018, creating instead an enduring agreement which should roll on from year to year. The ATT recently submitted comments to HMRC on this draft legislation.3
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“We welcome the creation of an enduring agreement so that employers do not need to renew their PAYE Settlement Agreements (PSAs) annually. This is a sensible measure which we hope will encourage more employers to use this route to deal with eligible benefits-in-kind.
“We would like to see more detail on how the changes will work in practice. We call on HMRC to issue clear guidance as soon as possible on the process for application, variation and cessation of enduring agreements. Employers and their agents need this promptly, given that this change is expected to take place within the next five weeks.”
The ATT has some reservations about one aspect in the draft legislation; this concerns when HMRC can cancel a PSA agreement. At present, HMRC can only cancel a PSA in specific circumstances.4
Yvette Nunn said:
“The new draft regulations appear to give HMRC the right to cancel for any reason. Given the nature of the benefits covered by this procedure, if a PSA is cancelled by HMRC without a good reason, the costs to the employer of reporting the benefits in the ordinary manner is likely to be disproportionate to the amount of tax collected. We do not wish to see the protections for an employer in these circumstances downgraded to HMRC guidance, which does not have the force of law.
“We would very much like HMRC to bring forward the introduction of a digital solution to preparing and submitting PSAs. We think that could provide significant time savings for employers and HMRC. However, we appreciate that HMRC has to focus its resources on the areas that will give it the greatest return on investment. One simple step which we have asked HMRC to consider in the meantime is the provision of an email address for employers and agents to send the PSA applications, variations and computations. Currently these must all be printed out and submitted by post.”
Notes for editors
1. A trivial benefit is broadly one which is defined as:
i. Costing less than £50 to provide (or the average cost per employee is less than £50 if the benefit is provided to a group of employees and it is impracticable to work out the exact cost per person).
ii. Can’t be cash or a cash voucher.
iii. Isn’t a reward for the employees work or performance.
iv. Isn’t contractual.
There is a further limit on the total value of trivial benefits that can be provided to directors or their family of a ‘close’ company. A ‘close’ company is broadly one owned by a small number of individuals. The ATT have commented on trivial benefit rules before here.
2. Pay As You Earn (PAYE) Settlement Agreements (PSAs) were introduced in the 1990s, as an administrative easement for employers and HMRC. They allow employers to settle, in a single payment, the income tax liability on certain, typically minor, benefits in kind (BiKs) and expenses payments.
4. The specific circumstances in the current legislation when HMRC is allowed to cancel an agreement include where the employer has seriously or persistently failed:
i. to account to HMRC for sums for which the employer is accountable under the PSA, or otherwise to comply with the terms of the PS
ii. to produce records in accordance with regulation 117 (inspection of PSA records),
iii. to deduct, or account for, tax in accordance with Parts 3 and 4 (deduction and repayment of tax; payments, returns and information), or
iv. to deliver returns in accordance with Parts 3 and 4.
5. HMRC guidance on PSAs can be found here.