A new PAYE Settlement Agreement (PSA) must be agreed with HMRC by 5 July after the end of the first tax year it covers. The tax and Class 1B National Insurance due under it must be paid by 22 October if you pay electronically, or 19 October by post. For 2026/27, a new PSA must be agreed by 5 July 2027 and paid for by 22 October 2027, with Class 1B charged at 15%.
A PSA lets an employer pay the tax and National Insurance on minor, irregular or impracticable benefits in one annual payment, so those items do not need to go through payroll or onto P11Ds. The agreement is easy to set up. Mistakes usually happen when deadlines are missed or the grossing-up is calculated wrongly.
PSA deadlines at a glance
| Deadline | What is due | 2026/27 PSA |
|---|---|---|
| 5 July after the tax year | Apply for and agree a new PSA | 5 July 2027 |
| 31 July after the tax year | PSA calculation sent to HMRC (form PSA1) | 31 July 2027 |
| 19 October after the tax year | Payment by post | 19 October 2027 |
| 22 October after the tax year | Electronic payment cleared into HMRC's account | 22 October 2027 |
The 5 July deadline only applies to the first tax year a PSA covers. A PSA is enduring: it continues until you or HMRC change or cancel it, and you do not have to reapply each year. You do have to submit a calculation every year, even if you provided nothing that year. If you do not send the values, HMRC will work out what you owe, and you'll be charged more.
The payment deadline for 2025/26 PSAs was 22 October 2026. If you have not paid, pay now, because interest and a late payment penalty may be charged. Use the 14-character PSA reference starting with X from HMRC's payslip, not your PAYE Accounts Office reference. A payment made with the wrong reference may be delayed or used to pay a different tax bill.
What you can include in a PSA
Items must be minor, irregular or impracticable. HMRC's examples include:
- Minor. Long-service awards, small gifts and vouchers, telephone bills, and tickets to staff events;
- Irregular. Relocation expenses over the £8,000 tax-free limit, overseas conference costs, the expenses of a spouse accompanying an employee abroad, and use of a company holiday flat;
- Impracticable. Non-exempt staff entertainment, shared cars, and personal care such as hairdressing.
You cannot include wages, high-value benefits such as company cars, cash bonuses, round-sum allowances or beneficial loans. Trivial benefits that are already exempt do not need to go in. If you apply after the tax year has started, items you have already put through payroll or included in an employee's tax code must still be reported on a P11D. Our P11D guide covers that side of the process.
How the PSA is calculated
Because the employer pays the employees' tax, that payment is itself a further benefit. The tax is therefore grossed up: the value of the benefits multiplied by the tax rate, then multiplied by 100 ÷ (100 − tax rate). This is done separately for each group of employees on a different tax rate, including Scottish and Welsh taxpayers. Class 1B National Insurance is then charged on the total tax payable plus the value of any items that would normally attract Class 1 or Class 1A National Insurance.
Worked example for 2026/27
An employer gives 1,000 staff a £50 event ticket each, which is £50,000 in total. 800 staff pay tax at 20% and 200 at 40%.
- Basic-rate staff. £40,000 × 20% = £8,000, grossed up × 100 ÷ 80 = £10,000;
- Higher-rate staff. £10,000 × 40% = £4,000, grossed up × 100 ÷ 60 = £6,666.67;
- Class 1B. (£16,666.67 + £50,000) × 15% = £10,000.00.
The PSA costs £26,666.67, more than half the value of the tickets. It is worth checking whether an exemption covers an item before putting it in a PSA. Our guide to benefits in kind explains how benefits are valued, and our National Insurance calculator covers ordinary Class 1 contributions.
Class 1B National Insurance
Class 1B is an employer-only contribution and gives employees no benefit entitlement. It replaces the Class 1 or Class 1A contributions that would otherwise be due on the items in the PSA. It can only replace a liability that has not yet fallen due, though. Class 1 is due 14 days after the end of each tax month, and Class 1A is due by 19 July. If the PSA is agreed after those dates, the Class 1 or Class 1A already due stays payable. This is a good reason to agree the PSA early rather than at the 5 July deadline.
The Class 1B rate is 15% for 2026/27. HMRC's table shows 13.8% for 2020/21 to 2024/25, except 14.53% for 2022/23, and 15% from 2025/26.
PSAs and payrolling from April 2027
The government has announced that payrolling benefits in kind will become mandatory. From 6 April 2027 it applies to company cars and vans, car and van fuel, and medical benefits, and most other benefits follow from 6 April 2028. HMRC's guidance on PSAs already says that any benefit or expense that can reasonably be attributed to an individual employee should be reported through payroll, a P11D or payrolling. A PSA is meant for the shared, one-off and minor items that are left over.
Our employment tax team sets up PSAs, prepares the annual PSA1 calculation and reviews what belongs in it, usually alongside our PAYE services. If your 5 July or 22 October deadline is close, contact us early.