PAYE Settlement Agreement UK 2026/27 — Rules, Deadlines and Benefits

A PAYE Settlement Agreement (PSA) lets a UK employer settle the Income Tax and Class 1B National Insurance due on certain taxable expenses and benefits on behalf of employees. It is designed for minor, irregular or impracticable-to-report items, not as a general substitute for payroll or P11D reporting.

For the 2026/27 tax year, an employer generally needs to apply for a PSA by 5 July 2027 if it is the first year the agreement applies. The employer must normally send the PSA calculation by 31 July 2027 and pay the tax and Class 1B NICs by 22 October 2027 for electronic payment, or 19 October when paying by post.

HMRC opened a 2026 call for evidence about how PSAs work in practice. It does not introduce a new tax or change the current rules. Employers should use the current HMRC PSA guidance for their live obligations.

What is a PAYE Settlement Agreement?

A PSA is an enduring agreement between an employer and HMRC. It allows the employer to settle the tax and Class 1B NICs on certain expenses and benefits so the employee does not pay the tax through their tax code or payroll deduction.

The employer pays the liability. Because the tax is normally grossed up to reflect the employee’s tax position, the cost of a PSA can be higher than simply applying a tax rate to the original benefit amount.

The agreement is separate from the underlying tax treatment of a benefit. An item does not become tax-free merely because the employer pays the tax through a PSA.

What can a PSA include?

The suitability test is fact-specific. Items that may be considered for a PSA often include small or irregular benefits, staff entertaining that is taxable, or expenses where it would be impractical to identify and report each recipient through the normal process.

HMRC’s current guidance and call for evidence emphasise that PSAs are intended for low-value, irregular or non-routine items. An employer should not use a PSA simply because it is easier than identifying employees who received a regular benefit.

Before including an item, ask:

• Is the item taxable under the ordinary benefit or expense rules?
• Is it minor, irregular or impracticable to report through payroll or P11D?
• Can the employee and amount be identified accurately?
• Has the item already been included in payroll or a P11D?
• Does the PSA agreement specifically cover the item for the relevant tax year?

The agreement should not include items that have already been taxed through another route, because that can create duplicate reporting and payment.

What cannot be assumed to qualify?

A PSA is not a blanket employer-benefit exemption. Regular salary-sacrifice arrangements, recurring private medical insurance, company cars and other identifiable benefits normally need their own payroll or P11D treatment unless HMRC guidance clearly supports another route.

The employer should also keep separate the different rules for exempt benefits, trivial benefits, annual functions, staff meals and work equipment. An item that is exempt does not need to be included in a PSA, while a taxable item may need to be reported elsewhere.

Use the relevant guides for the underlying benefit, such as trivial benefits, annual staff parties and private medical insurance, before deciding on the PSA route.

PAYE Settlement Agreement deadlines for 2026/27

The application deadline is linked to the first tax year for which the agreement applies. An existing agreement is enduring, but the employer must amend it if it needs to add items or change the scope. The application should use the employer’s PAYE reference, not the Accounts Office reference.

The calculation deadline is not the same as the payment deadline. Keep enough time to identify the benefits, determine the taxable amount, gross up where required and calculate Class 1B NICs.

How is the PSA liability calculated?

The employer calculates the Income Tax and Class 1B NICs due on the agreed items. The tax calculation normally requires grossing up because the employer is paying the employee’s tax liability. The gross-up depends on the employee’s marginal tax position and, where relevant, Scottish Income Tax treatment.

Class 1B NICs are calculated on the taxable items included in the PSA and on the tax paid by the employer under the agreement. The calculation should use the applicable rates and HMRC’s current instructions for the relevant tax year.

Do not use the headline Income Tax rate as the total PSA cost. The employee population, gross-up, NIC calculation, exempt items and any regional tax treatment can materially change the result.

How to apply for a PSA

Keep the employee, date, amount, business purpose and reporting-route evidence even where the PSA is intended to avoid individual P11D reporting. HMRC may ask how the employer decided that an item was suitable and how the calculation was derived.

What did HMRC’s 2026 call for evidence change?

Nothing in the current tax calculation. HMRC’s June 2026 call for evidence sought views on how employers interpret and use PSAs, whether the rules are clear and how PSAs operate alongside payroll and P11D reporting. It explicitly said the exercise was not about changing how benefits and expenses are taxed and did not introduce a new tax.

The call for evidence may lead to clearer guidance or future policy changes, but employers should not remove or add items to a live PSA based only on speculation about the outcome. Use the current agreement and official guidance until HMRC publishes a change.

Frequently Asked Questions

Evidence and decision checks

A reliable paye settlement agreement guide 2026 27 review starts by fixing the tax year and the date on which the relevant event happened. Record the person's or business's status, the income or transaction category, the amount before tax, tax already withheld, and any election or claim being relied on. Do not combine a headline figure with a final liability: the result can change when another income source, a payment date, an ownership interest or a qualifying condition is added.

Keep the source documents behind every important input. Depending on the subject, that may include payslips, invoices, bank statements, contracts, provider statements, travel records, HMRC notices, payroll submissions, valuations or correspondence. Where an amount is apportioned, write down the method and retain the underlying total. If a correction is made, preserve the original figure and explain the reason, date and evidence for the replacement.

Before relying on the result, check the current official guidance for the same tax year and jurisdiction. Distinguish enacted law from a consultation, draft measure, announcement or future proposal, and record the effective date. Reconcile the final estimate to the relevant return, payroll record or HMRC account. A calculator or explanatory guide can support a decision, but it cannot replace the eligibility test or the official filing and payment process.

Evidence and decision checks

A reliable paye settlement agreement guide 2026 27 review starts by fixing the tax year and the date on which the relevant event happened. Record the person's or business's status, the income or transaction category, the amount before tax, tax already withheld, and any election or claim being relied on. Do not combine a headline figure with a final liability: the result can change when another income source, a payment date, an ownership interest or a qualifying condition is added.

Keep the source documents behind every important input. Depending on the subject, that may include payslips, invoices, bank statements, contracts, provider statements, travel records, HMRC notices, payroll submissions, valuations or correspondence. Where an amount is apportioned, write down the method and retain the underlying total. If a correction is made, preserve the original figure and explain the reason, date and evidence for the replacement.

Before relying on the result, check the current official guidance for the same tax year and jurisdiction. Distinguish enacted law from a consultation, draft measure, announcement or future proposal, and record the effective date. Reconcile the final estimate to the relevant return, payroll record or HMRC account. A calculator or explanatory guide can support a decision, but it cannot replace the eligibility test or the official filing and payment process.

Keep the PSA agreement, gross-up calculation and payment receipt together for the relevant year.

Reconcile the PSA payment reference to the agreed calculation before closing the year.

PSA preparation and reconciliation

List every minor, irregular or impracticable benefit and expense, with employee, date, amount, VAT, contribution and reason. Classify each item before agreeing the settlement. A PSA cannot turn regular salary or an item that should be payrolled into an unreported benefit.

Reconcile the grossed-up tax and National Insurance calculation to invoices, expense records, payroll, P11D or payrolling data and the payment reference. Keep the agreement with HMRC and the assumptions used. Review recurring items and benefit-provider changes before the next year rather than carrying forward an old total.

Employer checklist for a PSA

List the minor, irregular or impracticable benefits and expenses for the tax year, then classify each item before agreeing the settlement. Keep employee names, dates, amounts, VAT evidence, any employee contribution and the reason the item is included. A PSA is not a way to conceal a regular salary or an item that should have been payrolled.

Reconcile the calculation to the payroll, expense ledger, P11D or payrolling records and the payment reference. Check the grossed-up tax and National Insurance treatment separately and keep the employer's agreement with HMRC. If an item is recurring or available to many employees, review whether a different reporting method is more appropriate in the next year.

Retain the agreement, calculations, invoices and HMRC correspondence for the relevant retention period. A later change in policy, employee contribution or benefit provider can change the calculation, so carry forward the process, not an old total.

This guide reflects HMRC material available on 20 September 2026. Confirm the PSA agreement scope, current rates, reporting route and deadlines before submitting a 2026/27 calculation.

Official sources

• HMRC: PAYE Settlement Agreements call for evidence
• HMRC: PSA deadlines and payment
• HMRC: Pay a PAYE Settlement Agreement
• HMRC: Help with PSA calculations
• HMRC: August 2026 Employer Bulletin

These HMRC sources are the official references for PSA eligibility, agreement administration, gross-up calculations, payment deadlines and the separately labelled 2026 call for evidence.