HMRC Launches Call for Evidence on PAYE Settlement Agreements

HM Revenue and Customs (HMRC) has launched a 12-week call for evidence on Pay As You Earn (PAYE) Settlement Agreements (PSAs), inviting employers, payroll agents, tax advisers and software providers to share how these arrangements work in practice.

Opened on 23 June 2026 and running until 15 September 2026, the consultation aims to address variations in how organisations apply PSA rules and to identify ways to reduce administrative burdens while maintaining effective tax compliance.

PSAs are voluntary agreements allowing employers to settle income tax and Class 1B National Insurance contributions (NICs) on certain employee benefits and expenses directly with HMRC. This avoids individual reporting through P11D forms or payroll processing. Legislated under sections 703 to 705 of the Income Tax (Earnings and Pensions) Act 2003, they are designed for low-value, irregular or non-routine items where identifying individual recipients or allocating costs is impracticable.

Common examples include shared costs at staff events, such as buffet lunches for large groups where individual consumption cannot be easily identified, or group transportation like taxis after functions. However, HMRC stresses that where both the recipient and the cost can be clearly identified, standard PAYE or P11D reporting should normally be used instead of a PSA.

Initial engagement has revealed wide variation in how employers interpret and apply the rules, influenced by differences in organisational size, internal systems, workforce structures and operational circumstances. This has led to concerns about clarity of the boundary with trivial benefits, administrative burdens in establishing, amending and submitting agreements, and the complexity of tax and NIC calculations. These calculations often involve apportioning benefits across employees with different marginal tax rates (including basic, higher and additional rates, as well as Scottish and Welsh variations), grossing up liabilities, and handling cases where employees have no PAYE income tax liability.

The call for evidence seeks detailed input on practical issues including the types of benefits included in PSAs and reasons for their use, decision-making for choosing PSAs versus standard reporting, challenges with timings and amendments during the year, and the time, resources and costs of setup, maintenance and submissions. It also explores whether a definitive list of eligible items would aid consistency, views on alternative non-contract models, specific calculation methodologies, and differences in impact between SMEs and larger employers or workforce groups.

Responses are welcomed from organisations of all sizes and can be sent by email to [email protected] or by post to HMRC in Newcastle upon Tyne. Partial responses are accepted, and HMRC may contact respondents for further discussion.

After the deadline, responses will be reviewed and a summary published later in the year. The initiative supports the government’s principles of predictable and agile tax policy making, with the potential to deliver clearer guidance and a more proportionate framework that eases compliance pressures, particularly for smaller employers.

Businesses and advisers are encouraged to contribute their practical experiences before 15 September to help shape any future improvements to the PSA system