If your business has a PAYE Settlement Agreement (PSA) with HMRC for the 2025/26 tax year, it’s time to make sure your calculation and payment are on track.
A PSA allows employers to pay the Income Tax and Class 1B National Insurance due on certain minor, irregular or impractical-to-tax benefits and expenses provided to employees. It can make things simpler for both the employer and employees, as the employer settles the tax rather than deducting it from employees’ pay.
Key PSA Payment Deadline for 2025/26
For the 2025/26 tax year, the payment deadline is:
- 22 October 2026 – if paying electronically
- 19 October 2026 – if paying by post/cheque
It is important to allow enough time for your payment to reach HMRC. Late payments may result in interest and penalties.
What Do You Need to Do Before Paying?
Before making your payment, you need to work out the total tax and Class 1B National Insurance due under your PSA and tell HMRC about the benefits and expenses included.
You can submit the details using HMRC’s online PSA1 form. You’ll need information such as your employer PAYE reference, the relevant tax year, the tax rates applicable to employees and the total value of the benefits or expenses by tax band.
If you have not submitted your PSA calculation yet, it is worth dealing with it as soon as possible.
Why Does the Tax Need to Be Grossed Up?
One part of PSA calculations that can easily cause confusion is grossing up.
When an employer pays an employee’s tax through a PSA, that tax payment is itself treated as a taxable benefit. Therefore, the amount of tax due has to be grossed up based on the employee’s marginal tax rate.
For example, if benefits worth £10,000 are provided to employees who pay tax at 20%, the grossed-up amount is calculated as:
£10,000 × 100 ÷ 80 = £12,500
The calculation needs to be performed separately for employees subject to different tax rates.
Class 1B National Insurance for 2025/26
Employers also need to account for Class 1B National Insurance under a PSA.
For 2025/26, the Class 1B NIC rate is 15%. It generally applies to:
- The value of PSA items that would normally attract Class 1 or Class 1A NIC; and
- The tax payable by the employer under the PSA.
For example, if £20,000 of benefits are subject to Class 1B NIC and the PSA tax is £5,000:
Class 1B NIC = (£20,000 + £5,000) × 15% = £3,750
This is why getting the PSA calculation right is important before making the final payment.
How to Pay Your PSA
Once HMRC has received your calculation, you will have the information needed to make the payment.
Payment can be made through several methods, including online banking, Direct Debit, debit card or corporate credit card. You will need the relevant payment reference when making the payment.
Avoid Leaving Your PSA Until the Last Minute
PSA calculations can become complicated when a business provides different benefits to employees who fall into different tax bands.
It is important to:
- Identify all benefits and expenses included in the PSA.
- Calculate the value of the benefits correctly.
- Apply the correct employee tax rates.
- Gross up the tax where required.
- Calculate Class 1B National Insurance at 15%.
- Submit the calculation to HMRC.
- Make the payment by the relevant deadline.
Keeping accurate records throughout the year can make the final calculation much easier.
Frequently Asked Questions (FAQs)
1. What is a PAYE Settlement Agreement?
A PAYE Settlement Agreement is an arrangement that allows an employer to pay the tax and Class 1B National Insurance on certain minor, irregular or impractical-to-tax benefits and expenses provided to employees.
2. When is the 2025/26 PSA payment deadline?
The deadline is 22 October 2026 for electronic payments. If paying by post, the payment should reach HMRC by 19 October 2026.
3. What is the Class 1B NIC rate for 2025/26?
The Class 1B National Insurance rate for 2025/26 is 15%.
4. Why is PSA tax grossed up?
Because when the employer pays the employee’s tax under the PSA, that tax payment itself represents a taxable benefit. The tax therefore needs to be grossed up using the employee’s applicable marginal tax rate.
5. How do I tell HMRC what is included in my PSA?
You can use HMRC’s online PSA1 form to report the value of benefits and expenses included in your agreement.
Need Help With Your PSA Calculation?
Working out a PAYE Settlement Agreement can take time, particularly when you have employees paying tax at different rates or a large number of benefits to consider. Pro-Taxman can support businesses with payroll and accounting requirements, including PSA-related calculations and compliance work. Getting the calculation reviewed before payment can help reduce the risk of errors, missed items and unnecessary complications with HMRC.