A PAYE Settlement Agreement: Do you need one before 5 July?

As employers work through P11Ds and year-end reporting, the 5 July PAYE Settlement Agreement (PSA) deadline can be easily overlooked.

Taking a few minutes to review benefits or expenses that do not sit within your usual reporting process could help avoid unnecessary compliance issues later.

A simple year-end review

If you are currently preparing P11Ds, a useful starting point is to consider items that feel difficult to report through normal payroll or benefit reporting processes.

Common examples include:

• Small-value gifts or vouchers
• Staff entertaining that has exceeded exemption limits
• One-off incentives or recognition awards
• Costs that are difficult to allocate across individual employees

These are often the types of items that can be included in a PSA, rather than being reported on individual P11Ds or processed through payroll.

Small amounts can still matter

It is easy to assume that low-value items are unlikely to create a tax issue. However, the position is not always as straightforward as it may appear.

For example:

• Small gifts or incentives can still be taxable, particularly where they are provided as a reward
• Reimbursements can lose exemptions depending on how they are structured
• Trivial benefits are tightly defined and often do not apply in practice

Over the course of a year, these items can quietly accumulate and create potential compliance issues if they are not considered carefully.

A PSA can provide a practical way of managing these items, helping employers meet their reporting requirements consistently.

The annual function trap

The £150 per head exemption is another area worth reviewing.

Whilst it can appear generous, costs can quickly add up when you include:

• Venue costs
• Food and drink
• Transport
• Accommodation (where applicable)
• VAT

It does not take much for a seemingly ordinary event to exceed the limit.

Once that happens, the entire cost becomes taxable, not just the excess. Most employers prefer not to pass that tax position on to employees. In these situations, a PSA is often the most practical and employee-friendly approach.

How a PSA can help

A PSA allows the employer to settle the tax and National Insurance contributions centrally, rather than reporting them through employee tax records or P11Ds.

It is typically used for items that are:

• Minor
• Irregular
• Difficult to allocate on an individual basis

A PSA is not designed to reduce tax liabilities. In fact, the gross-up calculation often increases the overall cost to the employer.

However, it can provide benefits such as:

• Cleaner reporting
• A more consistent approach
• Greater certainty for employees
• Avoiding unexpected tax charges for employees

Why the 5 July deadline matters

If you do not already have a PSA, it must be agreed with HMRC by 5 July following the end of the tax year.

If you miss the deadline:

• You cannot simply include those items later
• You may be forced back into P11D reporting or payroll corrections
• In some cases, the issue only comes to light after employees have already been affected

Even if you already have a PSA in place, this is a good opportunity to review whether it still reflects the benefits and expenses your business provides and whether any additional categories should be included.

A useful year-end sense check

Completing P11Ds provides a valuable opportunity to step back and review the wider picture.

Ask yourself:

• What benefits, in the broadest sense, have we actually provided?
• Do they sit comfortably within our current reporting processes?
• If not, what is the most appropriate way of dealing with them?

In practice, the decision is often not between P11Ds and a PSA.

It is between leaving items unresolved — often because they have been overlooked or because the employer has not realised they may be taxable — and dealing with them properly, which may include using a PSA.

How HURST can help

If you are reviewing your P11Ds and are unsure how certain items should be treated, it is worth having a conversation before the 5 July deadline.

At HURST, we can help you:

• Assess whether a PSA is appropriate for your business
• Identify which benefits and expenses should be included
• Liaise with HMRC and agree the arrangement before the deadline
• Support with calculations, reporting and submissions

Taking the time to review these items now can help you approach year-end reporting with confidence and avoid unnecessary complications later.

To discuss your requirements, please contact a member of our tax team imagine@hurst.co.uk