A great deal of company time is spent on completing paperwork for the Taxman. In particular, every staff expense and benefit has to be disclosed via Form P11D, which also results in extra tax for them. Is there a solution?
Try a PAYE Settlement Agreement?
Over the course of the year you provide your staff with a range of expenses and benefits – it might be anything from activity days to magazine subscriptions. Ordinarily, they have to be disclosed on Form P11D and will result in a tax liability for your staff plus you’ll have to pay NI on them. Not much of a benefit there!
However, under a PAYE Settlement Agreement (PSA) the company can pay the tax and NI on behalf of your staff plus they don’t have to be listed on the P11D. They get to enjoy the benefit tax-free and you are relieved of the admin burden. What’s involved?
How does it work?
A written request must be made to your local tax office explaining that your company would like to join the PSA scheme and detailing the type of benefits or expenses that will be paid through it. If they agree that the PSA scheme suits your needs they will fill in a form P626 and send it to you for your approval which you then return.
At the end of each tax year and before July 6, the company sends a simple letter to the Taxman including details of the staff that received benefits covered by the PSA, the type and value of each and the rate at which they pay income tax. The Taxman will then calculate the income tax and NI due and send you a copy of his computation and a payment slip to pay the tax due by October 19.
A Ltd took their staff on a karting event which cost £120 per head. The company has ten staff of which two are higher rate taxpayers (40%) and eight are basic rate tax payers (22%). The tax due would be £640 as detailed below.
Higher rate taxpayer £160 (120 x 2)/ 60 x 40.
Lower rate taxpayer £271 (120 x 8) / 78 x 22.
Higher rate taxpayer £51 (240 + 160) x 12.8%.
Lower rate taxpayer £158 (960 + 271) x 12.8%.