Mike Purcell Accountant and Software Consultant

The employer can pay the tax and NIC on certain taxable expenses or benefits…

We’ve covered providing various tax efficient and tax-free gifts in a previous article here and also some more specific practical examples of such gifts can be found here.  Usually these gifts would not be tied to specific employee performance and therefore these provisions can be used.  There are also some tax-free benefits in kind that can be provided to employees – watch out for an upcoming article on these!

Any gift cards, vouchers or other non-monetary gifts provided to staff related to their employment performance are usually subject to tax and national insurance. These would usually have to be put through your payroll and any tax and national insurance paid as normal by employee/employer.

However, in some circumstances, the employer can pay the tax and NIC on some taxable benefits or expenses to employees without the employee having to bear the tax and national insurance costs, which allows them to receive the full value. This can be achieved by completing a PAYE Settlement Agreement (PSA) with HMRC. 

What does a PSA cover?
  • Small gifts and vouchers (Minor or irregular and might include items such as small gifts not covered by the trivial benefits rules)
  • Employee’s telephone bills
  • Staff entertainment – e.g. a ticket to an event
  • Non-business expenses while travelling overnight on business that are over the daily limits (more information on the limit here)
What is not included?
  • Bonuses 
  • Round sum allowances
  • Loans to employees over £10,000

The main benefits if you have a PSA for these items are: 

  • No national insurance or tax to be paid by the employee
  • They will not need to be processed through your payroll
  • They will not need to be included on an end of year P11D expense and benefits form
  • You will pay employer’s Class 1B in one annual payment to cover the tax and national insurance

If you have any queries about this, please get in touch with the team at Oldfield Advisory, who will be able to help!

Key Takeaway 
Any expenses or benefits which are classed as minor, irregular or impracticable can be included in a PAYE Settlement Agreement (PSA). This will ensure any tax and national insurance is paid correctly in one annual calculation.

A PSA is a very effective simplification of the expenses and benefits processes enabling you to reduce reporting requirements, ensure HMRC compliance is managed appropriately and help with employee reward, as they do not suffer any tax or NIC on items included in the PSA. 

Oldfield Advisory can help with obtaining a PSA and the annual calculation required. Trivial benefits do not need to be included in a PSA. Feel free to contact us if you have any questions or would like more detailed advice.