A PSA is an annual arrangement under which the employer enters into an agreement to bear tax and Class 1B Employers NIC on specific small, non-cash, items that HMRC deem to be taxable that you do not want to include on P11D and give the employee a liability to tax.
If you have not already done so, now is the last chance for employers to enter into a PSA with HMRC in respect of the 2107/2018 tax year as the agreement has to be signed and in place with HMRC no later than 6th July 2018.
Some examples of suitable items typically included within PSAs are:
- Employee of the month awards or similar examples of employee recognition;
- Staff entertaining outside of the exemption for annual events open to all employees (up to £150 per head);
- Small gifts to employees, such as leaving presents;
- Long service awards to employees outside of the HMRC 20 year (£50 per year of service) exemption.
There are two advantages in choosing to enter a PSA. Firstly, the employees do not suffer a tax deduction in respect of something that was either intended as a reward or relates to something that they do not recognise as a benefit. Secondly, entering into a PSA demonstrates to HMRC that the employer has reviewed its processes and recognises that a PSA is appropriate. It is an indication to HMRC of good governance and controls, so will reduce your risk rating by HMRC.
In addition, with effect from the current tax year, 2018/19, the process for agreeing PSAs with HMRC is changing. Instead of having to enter into a new agreement with HMRC every year, HMRC are entering into ‘enduring’ agreements. Enduring agreements will last until the PSA either needs to be amended, i.e. you want to add an item to it, or the PSA is to be cancelled altogether. There will be no need to enter into a new agreement every year.
If you would like to know more about PSAs, and how Smith Cooper can help you to manage the process, please get in touch with one of our Employment Tax experts.