PAYE Settlement Agreements (PSAs)

A PAYE Settlement Agreement (PSA) allows you to make a single annual payment to HMRC to cover the tax and National Insurance on certain expenses and benefits you provide to your employees. This removes the need to report these items on P11D forms or through payroll, and you pa...

Introduction

What is a PAYE Settlement Agreement?

Under a PSA, you agree with HMRC each year to settle in a single payment the Income Tax liability on certain expenses and benefits provided to your employees, plus the National Insurance contributions liability that arises on both the benefit and the tax itself.

When you use a PSA, you don't have to report the payments it covers on form P11D or payroll them if you've registered to payroll benefits. You also don't have to give details to your employees, though doing so may help avoid queries.

When you can use a PSA

A PSA can only cover expenses and benefits that meet specific criteria. They must be:

Minor – small value items
Irregular – provided infrequently to employees
Impracticable – items where it's difficult to operate PAYE on or work out a value for the P11D or payroll

Regular business travel expenses would not usually be within scope of a PSA, unless they're relatively small amounts or the benefit is difficult to attribute to individual employees (such as shared cars and taxi journeys).

Round sum allowances for business travel cannot be included in a PSA. However, you can use a PSA to cover expenses payments made to employees who make occasional business journeys, even if the amounts involved are substantial.

Examples of what can be included

PSAs are particularly useful for:

Shared transport costs where it's difficult to attribute the benefit to individual employees
Staff entertainment and social events
Occasional business travel expenses for employees who don't regularly travel for work
Benefits that are difficult to value on an individual basis

How expenses exemptions work alongside PSAs

Since 6 April 2016, an exemption for paid or reimbursed expenses means you don't need to report expenses and benefits on which no tax is ultimately payable. Where an expense is paid or reimbursed which would be fully deductible, there's no need to report it.

This exemption covers expenses where there's a matching tax deduction, such as:

Air and rail tickets provided for business travel
Payments for subsistence while on business travel
Hotel bills paid directly by the employer

The exemption does not apply to fuel, company cars, or business mileage payments for travel in employees' own vehicles. It also doesn't apply to expenses paid under a salary sacrifice scheme.

You need to use a PSA for items that don't qualify for the exemption but meet the PSA criteria described above.

How to apply for a PSA

You need to agree a PSA with HMRC each year. Contact HMRC to set up or renew your PSA agreement. Once approved, you'll receive a 14-character PSA reference number starting with X.

Reporting the value of items in your PSA

After the tax year ends, you must tell HMRC the total value of all expenses and benefits included in your PSA. You need to include all employees who received these items, including those who earn below the personal tax allowance.

You can report this in two ways:

Using the online PSA1 form – the quickest method. You'll need:

Your email address
The tax year the notification applies to
Your employer PAYE reference number
The total value (including VAT) of each type of benefit or expense by tax band for each tax rate area (Scotland, Wales, England, Northern Ireland)

Posting an informal calculation – send your own calculation to:

PAYE Settlement Agreements

HM Revenue and Customs

BX9 2AN

This method takes longer as HMRC will need to review your information and may contact you with questions.

Paying your PSA

You must pay the tax and Class 1B National Insurance due from your PSA by 22 October following the tax year it applies to (or 19 October if you pay by post). For the 2025/26 tax year, payment is therefore due by 22 October 2026.

If you don't report the value of expenses or benefits to HMRC, they may calculate the amount themselves and you could be charged more.

Payment methods

You can pay online by:

Approving through your bank account (instant to 2 hours)
One-off Direct Debit (3 working days if previously set up; 5 working days if first time)
Debit or corporate credit card (same day – fees apply for corporate cards)

Other methods include:

Online or telephone banking by Faster Payments or CHAPS (same or next day)
Bacs (3 working days)
At your bank or building society in person
Cheque by post (allow 3 working days)

When you pay, you must use your 14-character PSA reference number starting with X – not your PAYE Accounts Office reference number. Using the wrong reference may delay your payment.

If you pay PAYE or Class 1 National Insurance by Direct Debit, you must make a separate Direct Debit payment for your PSA.

Payment details for bank transfers

If paying from a UK bank account:

Sort code: 08 32 10
Account number: 12001020
Account name: HMRC Shipley

If paying from an overseas account (payments must be in sterling):

IBAN: GB03 BARC 2011 4783 9776 92
BIC: BARCGB22
Account name: HMRC Shipley

Penalties for late payment

You may have to pay penalties and interest if your payment is late. Make sure you allow enough time for your payment to reach HMRC by the deadline.

If the deadline falls on a weekend or bank holiday, your payment must reach HMRC on the last working day before it (unless you're paying by Faster Payments).

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.