Employee taxable benefits and expenses

With the latest form P11D season over the line, employers will now be aiming to finalise this year’s compliance obligations with the submission of their PSA Settlement Agreement (“PSA”) return to HMRC ahead of the payment deadline of 22nd October 2025.

What is a PSA?

A PSA is an enduring formal agreement between an employer and HMRC, ideally agreed ahead of the tax year, which allows the employer to make an annual payment of employment taxes to HMRC, for employee taxable expenses which are minor, irregular, or where the cost is too difficult to apportion across employees.

Why is a PSA important?

A PSA eases the administration burden of completing forms P11D, delivers on employee reward and retention polices, whilst managing the employer’s compliance obligations.

For example, a PSA agreement typically includes taxable expenses such as staff entertaining (difficult to apportion), irregular taxable travel and minor taxable staff gifts. As the employer may not want the employee to suffer the employment taxes due or incur the burden of reporting such benefits on individual forms P11D.

Whilst the PSA bridges the gap between tax compliance, administration burden and employee reward, the return to HMRC is on a grossed-up basis, which means the settlement can be high.

What should employers do now?

Employers should ascertain:

• the extent to which taxable expenses and benefits are provided to employees. Are all taxable expenses and benefits reported to HMRC as required, does the business need a PSA or a new PSA category agreed with HMRC?
• the actual cost of providing taxable expenses and benefits to employees. Are the true costs understood by the business, including the annual gross-up, and are tax exemptions being applied?

Acting now, will mean the business can capitalise on key learnings from this employment taxes compliance season, to:

• identify opportunity for improving existing processes and controls for capturing, and reporting taxable expenses and benefits data to HMRC  
• inform change and planning, whether the business could be ready to voluntary payroll taxable benefits and expenses from 6th April 2026 (ahead of the compulsory aspects from April 2027)

How can we help?

We can assist with new PSA applications and variations, preparation of returns, the application of tax exemptions to mitigate costs, and the calculations. We can also help employers with all aspects of payrolling of benefits - to read more information about this, please click here.

For further assistance or if you wish to speak to one of our Employment Taxes team members, please click here.