PSA deadlines for the 2025/26 tax year (deadlines falling in 2026):
- Apply by 5 July 2026 — only required if you don't already have an enduring PSA in place (enduring PSAs carry over automatically since 2019).
- Submit your PSA calculation to HMRC: 31 July 2026 (per HMRC's GfC1 guidance — contractual obligation in the PSA document, not statutory).
- Pay the PSA liability: 19 October 2026 by post or 22 October 2026 electronically.
For the upcoming 2026/27 tax year, the corresponding dates are 5 July 2027 (apply), 31 July 2027 (submit) and 19/22 October 2027 (pay) — covered in the rest of this guide. Note: from 6 April 2027, most Benefits in Kind move to mandatory payrolling.
A PAYE Settlement Agreement (PSA) lets UK employers pay the income tax and Class 1B National Insurance on certain employee benefits in a single annual payment — instead of putting them on each individual's P11D. It's a small but underused administrative win — and with employer NI now at 15%, it's worth running the numbers properly.
A PAYE Settlement Agreement (PSA) lets the employer pay tax on minor staff benefits — Christmas parties beyond the £150/head limit, small gifts, and irregular benefits — instead of putting them on individual employees’ P11Ds. The deadline to apply for a 2026/27 PSA is 5 July 2027; tax and Class 1B NIC are due by 22 October 2027 (electronically).
This guide explains how PSAs work in 2026/27, what they cover, the deadlines, and when they actually save money rather than cost it.
📋 Key 2026/27 Deadlines at a Glance
- Apply for or amend a PSA for 2026/27: by 5 July 2027
- Pay tax and Class 1B NI (electronic): 22 October 2027
- Pay tax and Class 1B NI (cheque): 19 October 2027
- Class 1B NI rate: 15% (unchanged from 2025/26)
What Is a PAYE Settlement Agreement?
A PSA is a voluntary agreement with HMRC under which the employer takes on the tax and Class 1B NI cost on certain benefits — meaning the employee receives the benefit completely tax-free, and there is no entry on their P11D.
The employer pays the tax at the employee's marginal rate (grossed up), so it is more expensive than putting the benefit through payroll — but it removes the administrative burden and keeps the benefit truly 'gift-like' for the employee. The decision of whether to use a PSA comes down to the value of goodwill versus the tax cost.
What Can Go Through a PSA?
The benefit must meet at least one of the following criteria:
- Minor: small in value — a birthday bouquet or a £25 voucher
- Irregular: occurring infrequently — annual events rather than monthly perks
- Impracticable to value or apportion per employee: shared facilities or a group taxi home after a late finish
✓ Common Items Included in PSAs
- Staff entertainment events that exceed the £150 per head annual function exemption
- Small gifts and gift vouchers (where they are not 'trivial benefits' already exempt)
- Working lunches outside HMRC's strict subsistence rules
- Long service awards beyond the statutory exemptions
- Late-night taxi journeys home that don't meet the strict statutory exemption
- Staff incentive prizes
What Cannot Go Through a PSA
❌ These Items Cannot Be Covered by a PSA
- Cash payments — bonuses, commission, or routine expense reimbursements
- Major benefits — company cars, private medical insurance, and beneficial loans still need P11D treatment
- Round-sum allowances and routine business expenses
- High-value or regular gifts that are clearly part of remuneration
Sort Your PSA Before the Deadline
We prepare and submit PAYE Settlement Agreements as part of our payroll service.
Don't Forget the Trivial Benefits Exemption
Before agreeing a PSA, consider whether the benefit qualifies for the trivial benefits exemption — which costs the employer nothing in tax.
🆕 Four Conditions for Trivial Benefits Exemption
- Costs £50 or less (including VAT) per employee
- Is not cash or a cash voucher
- Is not a reward for work or performance
- Is not part of a contractual entitlement or salary sacrifice arrangement
⚠️ Director Cap — Close Companies
Directors of close companies are limited to £300 of trivial benefits per tax year. Anything above £50 per individual benefit, or above the director cap, falls outside the exemption — and a PSA can pick up the slack.
How the Tax and NI Are Calculated
The employer pays:
- Income tax on the grossed-up value of the benefit at the employee's marginal rate (20%, 40%, 45% — Scottish rates where applicable)
- Class 1B NI at 15% on the benefit value plus the income tax
🧮 Worked Example — £200 Gift to Higher-Rate Taxpayer
- Benefit value: £200
- Income tax grossed-up at 40%: £133.33
- Class 1B NI at 15% on £333.33: £50.00
- Total employer cost: £383.33 for a £200 gift
For a basic-rate employee, the same £200 gift costs the employer approximately £287 in total. Useful when the goodwill matters; expensive if used liberally.
Key Deadlines in 2026/27
| Action | Deadline |
|---|---|
| Apply for or amend a PSA for 2026/27 | By 5 July 2027 |
| Submit PSA1 calculation to HMRC | Following the end of the tax year |
| Pay PSA tax and Class 1B NI (electronic) | 22 October 2027 |
| Pay PSA tax and Class 1B NI (cheque) | 19 October 2027 |
Once agreed, a PSA continues automatically until the employer or HMRC ends it — you don't need to reapply each year. However, you should review annually whether the items still belong inside the PSA or whether trivial benefits or P11D treatment are now more appropriate.
⚠️ Late Application Consequences
If you miss the 5 July 2027 application deadline, the items cannot be covered by a PSA for 2026/27 and may need to be processed via P11D instead. This can create unexpected income tax and Class 1A NI charges for both the employer and potentially the employee.
PSA Worked Examples: What It Actually Costs
The numerical reality of a PSA is best shown with concrete examples. The headline figure of “tax plus NI on grossed-up benefits” can sound modest until the multiplier effect of grossing-up at higher rates lands. The three examples below use 2026/27 rates: PSA tax at 20%, 40% or 45% depending on the recipient’s marginal rate, plus Class 1B NI at 15%.
Example 1: Staff Christmas party exceeding the £150 exemption
A 60-person company holds a Christmas party costing £180 per head, total £10,800. The £150 annual function exemption applies all-or-nothing — exceed it by even £1 and the entire £180 becomes taxable, not just the £30 excess. If the workforce splits as 35 basic-rate, 20 higher-rate, and 5 additional-rate employees, the PSA grossed-up tax calculation is:
- Basic-rate slice: 35 × £180 = £6,300 grossed up to £7,875 (×100/80), tax at 20% = £1,575
- Higher-rate slice: 20 × £180 = £3,600 grossed up to £6,000 (×100/60), tax at 40% = £2,400
- Additional-rate slice: 5 × £180 = £900 grossed up to £1,636 (×100/55), tax at 45% = £736
- Total PSA tax: £4,711, plus Class 1B NI at 15% on the grossed-up totals = £2,326
- Total cost: £7,037 on top of the original £10,800 event cost
Compared with cancelling the £30-per-head overrun and staying under the £150 limit (free), the £1,800 of extra spending costs you nearly £7,000 in tax once grossed up. The arithmetic of the £150 cliff edge punishes overruns severely. Many employers don’t realise this until they receive their PSA invoice.
Example 2: Staff gifts of bottled wine at Christmas
An employer gives every employee a £40 bottle of wine at Christmas. There are 25 staff: 18 basic-rate, 6 higher-rate, 1 additional-rate. Stop: before reaching for the PSA, the trivial benefits exemption applies — £40 is below the £50 cost limit, the gift is not cash, not a reward for service, and not in any contractual obligation. The entire £1,000 of gifts is therefore tax-free and not reportable. No PSA needed.
Many businesses unnecessarily put items like this through a PSA, paying tax that never needed to be paid. Always check the trivial benefits exemption first.
Example 3: Long-service award exceeding the 20-year exemption
A higher-rate director receives a £2,000 watch on their 15-year anniversary. Long-service awards have a specific exemption — gifts to mark 20+ years of service up to £50 per year of service are exempt. At 15 years, this exemption doesn’t apply, and the £2,000 is fully taxable. PSA route:
- £2,000 grossed up at 40% marginal = £3,333
- PSA tax at 40% = £1,333
- Class 1B NI at 15% on £3,333 = £500
- Total PSA cost: £1,833 on top of the £2,000 watch
If the same watch had been given at the 20-year mark and kept to £1,000 (£50 × 20), the entire benefit would have been tax-free. Timing matters substantially.
Common PSA Mistakes Employers Make
The PSA process is one of the more frequently mishandled employer tax areas — partly because it sits between payroll, accounts payable and HR responsibilities and often falls through the gaps. The mistakes below come up repeatedly.
1. Forgetting to include items mid-year
The PSA contract is filed by 5 July following the tax year, but PSA-eligible items occur all through the year — long-service awards, leaving gifts, one-off staff entertainment, employee health screenings, taxi fares home for staff working late. Without a running log, items get forgotten and end up either omitted (creating an HMRC enquiry risk) or processed via P11D (which lands on the employee personally as a benefit-in-kind).
2. Using a PSA for items that can’t go through it
The PSA scope is limited to minor, irregular, or impracticable-to-allocate items. Regular benefits (company cars, private medical, gym membership) cannot go through a PSA — they must go on the P11D. Common errors include putting an annual gym membership through a PSA (it’s regular, so it can’t), or trying to put cash bonuses through a PSA (cash always goes through payroll, never a PSA).
3. Missing the trivial benefits exemption first
Anything under £50 that isn’t cash, isn’t a reward for service, and isn’t contractual is exempt under the trivial benefits rules. No PSA, no P11D, no tax. Director cap is £300/year. Many employers pay PSA tax on items that didn’t need any tax processing at all.
4. Getting the grossing-up arithmetic wrong
The grossing-up is at the employee’s marginal rate, not a flat rate. An employer assuming 20% across the workforce when the actual mix includes higher and additional rate employees will under-pay PSA tax — and HMRC will assess the shortfall plus interest. Conversely, assuming everyone is at 40% over-pays. Use the actual workforce composition.
5. Missing the 22 October payment deadline
Filing the PSA agreement by 5 July is one deadline. Paying the tax and NI by 22 October (or 19 October by post) is another. Late payment triggers interest at 7.75% and potentially penalties. The two deadlines are easy to confuse.
6. Treating the PSA as a one-time setup
From April 2024, PSAs are “enduring” — once in place they roll forward without re-application. But the scope of items must be reviewed each year and any new items added before they occur. Don’t assume the PSA you set up three years ago still covers everything you’re spending money on.
Frequently Asked Questions (Extended)
Can I include a leaving gift in a PSA?
Yes, leaving gifts (where there’s no contractual entitlement) typically qualify as PSA-eligible benefits since they are irregular and one-off. The trivial benefits exemption may also apply if the gift is under £50 — always check that route first. Leaving cash, however, must always go through payroll and cannot be in a PSA.
What about staff health screenings?
A general medical check-up or health screening provided to all employees is exempt from tax under a specific employee health screening exemption (s320B ITEPA 2003) — no PSA needed. If the screening is only offered to senior staff, the exemption doesn’t apply and a PSA is the typical route. Private medical insurance, by contrast, is regular and goes on the P11D, not in a PSA.
How does Class 1B NI compare with Class 1A?
Both are employer-only NICs at 15% (2026/27 rate). The difference is mechanical — Class 1A applies to P11D-reported benefits, Class 1B applies to PSA-grossed-up amounts. From the employer’s cash-out perspective, the rates are equivalent. The choice between P11D and PSA is therefore driven by whether the item is suitable for PSA treatment, not by the NI rate.
Do I need an accountant to run a PSA?
For a small PSA covering one or two items, you can run it in-house if your payroll team is comfortable with the calculation and the deadlines. For anything larger, or where the gross-up calculation involves a mix of marginal rates, professional support pays for itself by ensuring correct amounts and avoiding HMRC enquiries. Mistakes on PSA returns are common and HMRC has been increasing scrutiny since 2023.
Can a PSA cover non-UK resident employees?
Yes, but the income tax position depends on the employee’s residence status. For non-resident employees performing duties outside the UK, the benefit may not be UK-taxable and therefore wouldn’t need to be in the PSA. For non-resident employees performing duties in the UK (or for employees who are dual-resident), the benefit is typically UK-taxable and can be in the PSA. Get advice for any cross-border situations — the rules interact with double taxation treaties.
What happens if HMRC enquires into our PSA?
HMRC enquiries focus on whether items were properly included, whether they should have been P11D items instead, and whether the grossing-up calculation used the right marginal rates. Records to keep: payroll records showing employee tax codes (to evidence marginal rates), invoices for the goods/services provided, dates of provision, lists of recipients, and the PSA contract itself. Keep records for 6 years.
✅ Key Takeaways — PSA in 2026/27
- Use the trivial benefits exemption first — it is free; PSA tax is not. Check the £50 cost limit and the £300 director cap before going near a PSA.
- Use a PSA for benefits that are minor, irregular or impractical to allocate — staff parties above £150 per head are the classic example
- Apply by 5 July 2027 for the 2026/27 tax year — late applications force P11D treatment
- Pay by 22 October 2027 (electronic) to avoid interest and late payment penalties
- Class 1B NI is at 15% — meaningfully higher than the pre-April 2025 rate of 13.8%. Re-cost the PSA each year before deciding scope
- PSAs continue automatically year to year — but review annually to ensure the items still fit
Frequently Asked Questions
What is a PAYE Settlement Agreement?
A PSA is a voluntary agreement with HMRC under which the employer pays the income tax and Class 1B NI on certain minor, irregular or impractical-to-apportion employee benefits in a single annual payment, rather than reporting each item on individual P11D forms.
What is the trivial benefits exemption for 2026/27?
The trivial benefits exemption allows employers to provide benefits free of income tax and NI where the benefit costs £50 or less, is not cash or a cash voucher, is not a reward for performance, and is not contractual. Directors of close companies are limited to £300 of trivial benefits per tax year.
When is the PSA deadline for 2026/27?
The application deadline to set up or amend a PSA for 2026/27 is 5 July 2027. Payment of tax and Class 1B NI is due by 22 October 2027 (electronic) or 19 October 2027 (cheque).
📚 Related reading
- UK Employer Tax Guide 2026/27 — PSAs sit alongside RTI, P11D and auto-enrolment as the employer compliance backbone.
Shamim runs payroll, PSA, P11D and benefits compliance for owner-managed businesses, ensuring everything is reported correctly and tax-efficiently. The Tax Lead is regulated by ACCA with full professional indemnity cover.