Paye Settlement Agreement Changes: What You Need to Know
As a business owner, it is essential to keep up with the latest changes and updates in the tax laws to ensure that you stay compliant and avoid any penalties. One of the most recent changes in the UK tax system is the Paye Settlement Agreement (PSA) changes, which came into effect on April 6, 2021.
In this article, we will discuss all you need to know about the PSA changes and how they may affect your business.
What is a Paye Settlement Agreement (PSA)?
A PSA is an arrangement between an employer and HM Revenue and Customs (HMRC) that allows the employer to settle the tax and National Insurance contributions (NICs) on small or irregular taxable expenses and benefits provided to employees during the tax year. This eliminates the need for the employer to report and deduct tax and NICs on each payment.
The PSA can cover a wide range of expenses and benefits, including staff entertainment, gifts, and travel expenses. However, certain benefits, such as company cars, cannot be included in a PSA.
What are the PSA changes?
The PSA changes affect the deadline for submitting PSA returns and making payment to HMRC. Previously, the deadline for submitting a PSA return and making payment was July 6 following the end of the tax year. However, from April 6, 2021, the deadline has been brought forward to April 5.
This means that businesses must submit their 2020/2021 PSA returns and make full payment to HMRC by April 5, 2022. Failure to meet this deadline may result in penalties and interest charges.
Why were the PSA changes introduced?
The PSA changes were introduced to align the PSA deadline with the end of the tax year and simplify the process for businesses. By bringing forward the deadline, businesses can settle their tax liabilities earlier, ensuring that the correct amount of tax and NICs is paid on time.
What do the PSA changes mean for businesses?
The PSA changes mean that businesses must ensure that they submit their PSA return and make payment to HMRC by the new deadline of April 5. This may require businesses to review their processes and procedures for identifying and reporting expenses and benefits provided to employees.
Businesses should also ensure that they have accurate records of all expenses and benefits provided during the tax year, as these will be needed to complete the PSA return.
The PSA changes are a significant update to the UK tax system, and all businesses should ensure that they are aware of these changes and take the necessary steps to comply with the new deadline. Failure to comply with the new deadline may result in penalties and interest charges.
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