Simplifying PAYE Settlement Agreements

08 December 2016

As announced at Autumn Statement 2016 and following consultation, the government will legislate in Finance Bill 2017 to simplify the process for applying for and agreeing PAYE Settlement Agreements (PSAs). This removes the requirement for employers to obtain up-front agreement from HMRC for items to be included in a PSA.

Geographical extent - The change will come into effect from 6 April 2018 and apply to all four nations of the UK.

PSAs are arrangements under which employers can, in a single payment, settle their employees’ income tax liabilities for certain benefits and expenses. The government aims to reduce the administrative burden on employers of operating PSAs in their current form. This clause aligns with the principles of HMRC’s wider digital transformation strategy.

The proposed simplification is the removal the requirement for an employer to submit a request, and obtain agreement of terms, in advance of their end of year reporting obligations. The proposed process will allow for employers to submit their PSA request at the year end, and to make ad hoc requests during the year.

Currently, the process relies on the submission of paper returns. HMRC will develop a digital solution, in line with its digital strategy. It will be a largely automated process, although HMRC will be able to intervene manually to mitigate compliance risk.

This clause paves the way for automated agreements with HMRC. Consequential changes to Part 6 of the Income Tax (PAYE) Regulations 2003 will be required with effect from 6 April 2018.

Draft legislation (provision 10), summary of responses and a tax information and impact note (TIIN) have all been published.

If you have any questions about this change, or comments on the legislation, please contact Anne Archer on 03000 586099 (email: anne.t.archer@hmrc.gsi.gov.uk).