Simplification but not modernisation

12 March 2018

This article was featured in the April 2018 issue of the magazine.

Samantha Mann, MAAT, MCIPPDip CIPP senior policy and research officer, brings us up to date with developments on PSAs

The statutory provisions for a pay as you earn (PAYE) settlement agreement (PSA) enable an administrative easement for employers to agree to settle, in a single payment, the income tax liability on certain benefits in kind (BiKs) and expenses payments. Employers then become liable for class 1 National Insurance contributions (NICs) payable on them, with employees relieved of liability to income tax and NICs on them.

In summer 2016, in response to some (but not all) the recommendations made by the Office of Tax Simplification (OTS), HM Revenue & Customs (HMRC) launched a consultation that looked to simplify and modernise the process of agreement between the employer and the department on the working of a PSA. We have reported details of the consultation and the subsequent response in previous articles. 

During summer 2017, we hosted a roundtable and welcomed CIPP members to meet with HMRC analysts who were carrying out research in the ‘discovery phase’ to explore the pinch points for employers. The analysts covered many areas but looked at the P626 and the PSA1 processes together with listening to views and experiences that were shared as to the impact of an employer’s internal processes for expenses and BiKs. This research sought to reveal how a digital service would support and improve the administrative process of PSA administration for both the employer and HMRC.

The members who attended engaged with the process and were willing to share their experiences. What quickly became apparent, however, was that the administrative burden, quite often, arose from within their organisation. For example, late discovery of an item that needed to be covered by a PSA and which fell within the criteria but had not been included in the original annual agreement, thereby requiring additional steps in the process to ensure it was accounted for correctly. enduring agreement which once made will remain in place unless varied or cancelled...


We have heard many times of PSA calculations being rejected because of inclusion of items that weren’t in the original agreement which in turn required a second calculation removing the offending item and putting in a separate calculation. In this situation we couldn’t see how a digital process would help, and indeed much discussion about how each member dealt with various issues proved as helpful to members as discussion about digital services – networking between members never ceases to be useful.

Draft legislation was published on 6 February 2018, with consultation open until 21 February. The draft regulations propose amendments that will permit digital processing of applications without the need for agreement with an officer of HMRC in the future, but – as the explanatory memorandum confirms – this will only be the case as (or if) and when digital processes are introduced. 

There are no changes proposed to the criteria for whether a BiK item is eligible to be included in a PSA.

The significant change removes the need for an annual agreement being made between employer and HMRC and instead there will be an enduring agreement which once made will remain in place unless varied or cancelled by either the employer or HMRC. The enduring agreement builds on responses to feedback from earlier consultations that made clear that for many employers, albeit not all, their PSA agreements remained constant in terms of the annual content and so annual renewal was an unnecessary burden. For these employers there should be a significant saving on administrative burden. 

However, for employers who see regular fluctuations and change with the detail of their PSAs, now might be a good time to review past agreements and consider what should be included in the first ‘enduring agreement’ so as to minimise the need for an annual variation.

The proposals in the draft regulations also seek to remove the list of specific reasons as to why HMRC could cancel a PSA. This results in there being less restriction on when HMRC can cancel. 

The most recent issue of HMRC’s Employer Bulletin ( informs us that there will be a delay in the issue of P626s for the 2018/19 tax year until the consultation is concluded.

The amending regulations will also need to be revised to take account of the impact of changes being made to Scottish tax rates and thresholds.

Throughout consultation and in the earlier research by the OTS, stakeholders have made clear how important good guidance is to ensuring clarity and a smooth PSA administration. In their response, HMRC have acknowledged and agreed. The explanatory memorandum that accompanies the draft regulations contains a phrase that we have become familiar with across so many areas of guidance: “New guidance will be published in the PAYE manual in due course” (emphasis added).