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tax

January 16, 2017

The Government recently published the draft Finance Bill 2017 provisions. The publication holds major events for both individual and corporate taxpayers and advisers. One of these events is the simplification of the PAYE Settlement Agreements administration. Here’s what you need to know about it:

What Is the Proposal All About?

A PAYE Settlement Agreement (PSA) is an official agreement with the HMRC that can allow an employer to pay the National Insurance Contributions (NIC) and the income tax on benefits-in- kind offered to the employees. These benefits-in- kind must satisfy the impractical, irregular, or minor conditions imposed by the HMRC. The settlement amount to be paid by the employer is decided on ‘grossed up’ basis. At present, employers are required to enter into the PAYE settlement agreement with the HMRC latest by July 6 subsequent to the end of tax year identification of items that should be included in the agreement. The final amount along with the tax has to be paid by October 19 in the following tax year. This year, the HMRC on the recommendations of the Office of Tax Simplification opened consultations on the PSA. Once the consultations closed in October, the Government took charge to publish subsequent responses to each consultation, which were published in the Tax Information and Impact Note (TIIN) for forthcoming amendments to the process of PSA. The underlying aim of the Government was to see these changes take effect by tax year 2018-19 and continue for subsequent tax years. The most prominent changes that would apply include:

  • The requirement for HMRC’s agreement on items to be included in the PSA will be removed.
  • Employers would no longer be required to enter into an upfront annual PAYE settlement agreement with the HMRC.
  • The PSA process more like everything else would be digitised.

Further clarity and guidance on the items that can and cannot be a part of the PSA would be provided by the HMRC. This will be particularly focused on an in-depth explanation of the ‘impractical’ and ‘irregular’ conditions.

The Government does not plan to extend the scope of items that should be disclosed in the PSA. However it does plan to “keep this matter under review”.

What Has Changed Since the Prior Proposals?

The Government, after considering the debates for and against the PSA consultation document, decided to discard the following proposals:

  • Aligning the submission date for PSA with the payment date of Class 1 NICs will not be considered “at this time” – but maybe later.
  • Employers do not have to disclose in their PSA submissions, the number of employees that receive expenses or benefits-in- kind.
  • The ‘minor’ criterion will continue to apply to the types of expenses and benefits-in- kind that can be included in the PSA.
  • There will be no cap, exemption, and/or safeguard for any office-holders.

The bill will not take effect until the beginning of tax year 2018/19. Hence, there are still chances for further amendments. We at Capium, constantly maintain a follow up on the developments of the Finance Bill 2017. For more updates on it, stay tuned.

By Capium
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