The government is holding a consultation to gain views on how the process for agreeing and reporting items in a PSA can be made simpler and how the guidance can be improved to provide clarity for employers and HMRC.

PSAs are formal agreements between employers and HMRC which set out the items that the employer will pay grossed up tax and NICs on, replacing the nonstatutory ‘voluntary settlements’ that were available previously.

HMRC has proposed that removing the requirement for employers to agree with HMRC on what items can be accounted for in a PSA would provide simplification.

Employers would instead reference the legislative rules and guidance to assess what items are eligible for inclusion.

PSA currently uses paper returns, to convert to a digital return could eliminate manual and processing errors further simplifying the process.

The government wants the new PSA process to be clear and easy for employers to administer but still wants to retain flexibility. The current criteria for deciding what can be included in a PSA is often criticised for being subjective.

HMRC has decided against producing a list of items which can/cannot be included in a PSA as it would remove all flexibility. Instead, they propose to clarify the current rules and principles.

The ‘minor’ criteria within the PSA regulations was designed to capture items which are of such low monetary value that accounting for them via PAYE would cost the employer disproportionately more than providing the Benefit in Kind (BiK) itself, therefore the government has proposed to remove ‘minor’ from the PSA criteria.

The consultation closes on 18 October, details on Simplifying the PAYE Settlement Agreement (PSA) process is here.