Many businesses will provide certain benefits to their employees that are intended to motivate or incentivise them, such as staff entertaining, gifts and prizes.
Whilst there are certain exemptions available, many benefits remain liable to income tax and NIC. A PAYE Settlement agreement (PSA) is an administrative arrangement allowing employers to pay the income tax and NIC on behalf of their employees on certain items, rather than return them as benefits in kind on forms P11D or include them in the payroll.
If a staff member is provided with a weekend away as a prize, at a cost of say £500, the last thing he wants is a nasty shock next year when a P11D is filed, and he has a tax bill of £100 (20% taxpayer) or £200 (40% taxpayer).
The PSA is a way of dealing with this, and the company pays the tax and Class 1A NI. However, it does increase the cost to the company.
A £500 benefit with the employee paying the tax costs the company £500 + 13.8% Class 1A NI = £69 – total cost £569.
If a PSA is used:-
For a basic rate taxpayer, the £500 is deemed net of 20% tax – so £500*100/80 = £625 is the gross equivalent and 13.8% Class 1A NI is a further £86.25 – making the overall cost to the company £500 + £125 + £86.25 = £711.25.
For a 40% taxpayer, the £500 is deemed to be net of 40% tax – the figures become £500*100/60 = £833.33 + 13.8% – £115.00 making the total cost to the company £948.33.
Note it is not possible to use the PSA for all benefits – round sum allowances for instance must still go through the payroll.
Please contact us to discuss further if the PSA route might be of advantage in providing benefits to staff.
