PAYE Settlement Agreements: Why 22 October Matters This Year

If your business has ever paid for a staff Christmas party, covered a small taxable benefit that would be a hassle to report individually, or occasionally picks up an odd incidental expense on an employee's behalf, you may already have a PAYE Settlement Agreement (PSA) in place with HMRC. If you do, there's a deadline worth putting in the diary now: payment for the 2025/26 tax year is due by 22 October 2026 if you pay electronically, or 19 October if you're paying by post.

What a PSA actually does

A PSA lets an employer settle the tax and Class 1B National Insurance on certain benefits and expenses in a single annual payment, rather than reporting them individually through payroll or on each employee's P11D. It's designed for items that are minor, irregular, or simply impractical to value and report person by person — think staff entertainment, small gifts, or the odd one-off perk.

Not everything qualifies. HMRC won't allow a PSA to cover:

• Cash payments or bonuses paid through payroll

• Large benefits such as company cars

• Beneficial loans

• Anything already reported through a separate arrangement, such as payrolled benefits

The deadlines, and why they trip people up

PSAs have an unusually confusing set of dates attached to them:

• 6 July following the end of the tax year is the deadline for agreeing a new PSA with HMRC, or amending an existing one, for that year — this has already passed for 2025/26

• 31 July is treated as a working deadline for submitting the calculation of what's owed, though HMRC doesn't formally require it by then

• 22 October (or 19 October if paying by cheque) is the actual payment deadline — the date that matters most, because it's the one HMRC enforces with penalties and interest

Because the calculation and payment deadlines fall months apart, it's easy to lose track of the October date once the July paperwork is out of the way. If you already have a PSA agreed for 2025/26, now is a sensible time to finalise the figures with whoever handles your payroll, so there's no scramble in mid-October.

What happens if you're late

HMRC applies escalating penalties on unpaid PSA liabilities:

• 5% of the tax due if it isn't paid within 30 days of the deadline

• A further 5% if it's still outstanding after 6 months

• Another 5% if it remains unpaid after 12 months

Statutory interest also runs on the overdue amount from the payment date, on top of those penalties — so a PSA that slips by a few months can end up costing considerably more than the tax itself.

Working out the actual figure

Because a PSA settles the tax on the employee's behalf, the amount has to be grossed up to reflect what the employee would otherwise have paid, and Class 1B NIC is due on top of the grossed-up total. Getting this calculation right — particularly where staff pay tax at different rates — is where PSAs most often go wrong, and it's usually worth having someone check the workings before the payment goes in, not after.

If you're not sure whether you have one

Some employers set up a PSA years ago and haven't reviewed since whether it's still the right approach, or whether new benefits should be added to it. Others should have one in place and don't. Either way, with the payment deadline six weeks away, now is a good time to check.

At Jackson Lee Accountants in Bury, we help local employers work through exactly this kind of payroll year-end housekeeping — PSAs included — so nothing gets missed between the July paperwork and the October payment. If you'd like a second pair of eyes on your PSA calculation before 22 October, get in touch.