If your business has a PAYE Settlement Agreement (PSA) for the 2025/26 tax year, the bill is due soon. HMRC needs the tax and National Insurance due under your PSA by Thursday 22 October 2026. If you’re paying by cheque through the post, it needs to reach HMRC by Monday 19 October 2026. Your normal PAYE is due the same day, so it’s easy to pay one and forget the other.

Here’s a plain-English guide for Wigan and North West employers.

What is a PAYE Settlement Agreement?

A PSA lets you, as the employer, make one annual payment covering the tax and National Insurance on certain small or occasional benefits and expenses you give your staff. Your employees don’t pay the tax themselves.

If an item is covered by your PSA, you don’t need to:

• put it through payroll to work out tax and National Insurance
• include it on the employee’s end-of-year P11D
• pay Class 1A National Insurance on it. You pay Class 1B National Insurance as part of the PSA instead.

What can go into a PSA?

HMRC says items must be minor, irregular or impracticable. Examples from HMRC’s guidance include:

• Minor: long-service or incentive awards, small gifts and vouchers, and staff entertainment such as a ticket to an event
• Irregular: relocation expenses over the £8,000 tax-free amount, or overseas conference costs
• Impracticable: staff entertainment that isn’t exempt (for example, a Christmas party that goes over the limits) and shared cars

What can’t go in

Wages, high-value benefits such as company cars, and cash payments such as bonuses, round sum allowances and beneficial loans can’t go into a PSA. You also don’t need to include genuine trivial benefits (non-cash items costing £50 or less that aren’t a reward for work or in the employee’s contract), because they’re already tax-free. See our guide to trivial benefits and staff parties.

Key PSA dates for the 2025/26 tax year

1. 5 July 2026: the deadline to apply for a PSA covering 2025/26. This has now passed. Once agreed, a PSA carries on until you or HMRC cancel it, so you don’t need to renew it.
2. Before you pay: tell HMRC the value of the items in your PSA. You can use the online PSA1 form or post your own calculation. If you don’t, HMRC will work out the amount itself, and HMRC says you’ll be charged more.
3. 22 October 2026: the payment deadline for electronic payments. If you pay by cheque, it must reach HMRC by 19 October.

How the PSA bill is worked out

Your PSA bill has two parts.

1. Grossed-up Income Tax

Paying the tax on your employees’ behalf is itself a benefit to them, so HMRC “grosses up” the tax: tax due × 100 ÷ (100 − the tax rate). You do this separately for each tax rate, so Scottish taxpayers are calculated on Scottish rates.

2. Class 1B National Insurance

For 2025/26, Class 1B is charged at 15%. It applies to the value of the items that would otherwise attract National Insurance, plus the grossed-up tax.

A simple illustration

Say you gave £1,000 of non-exempt gifts to staff who all pay basic-rate tax at 20%, and the full £1,000 would otherwise attract National Insurance:

• Tax at 20% on £1,000 = £200
• Grossed up: £200 × 100 ÷ 80 = £250
• Class 1B at 15% on (£1,000 + £250) = £187.50
• Total PSA bill = £437.50

This is only an illustration, as your real figures depend on what you provided and your staff’s tax bands. It does show how “small” perks can cost close to half their value again.

How to pay your PSA without it going astray

This is where most mix-ups happen:

• Use the right reference. PSA payments use a 14-character reference starting with X, which you’ll find on the payslip HMRC sent you. Don’t use your normal PAYE Accounts Office reference, or the payment may be put against the wrong bill.
• Pay it separately. If you pay PAYE by Direct Debit, you need to make a separate payment for your PSA. HMRC doesn’t let you set up a Direct Debit that collects PSA payments automatically.
• Allow enough time. Faster Payments usually arrive the same or next day. A one-off Direct Debit takes 5 working days if it’s your first with HMRC (so set it up by Thursday 15 October), or 3 working days otherwise.

What happens if you pay late?

Interest builds up daily on unpaid amounts. For annual payments such as Class 1B, a 5% penalty can apply if the full amount isn’t paid within 30 days of the due date, with a further 5% at 6 months and another 5% at 12 months.

Don’t forget your regular PAYE on 22 October

22 October is also the deadline for your normal PAYE payment:

• Monthly payers: tax month 6 (6 September to 5 October)
• Quarterly payers: the quarter from 6 July to 5 October

The 19th-of-the-month cheque rule applies here too. Repeated late payments in a tax year can bring penalties of 1% to 4% of the late amount, although the first one doesn’t count. If juggling these dates is a headache, our PAYE support can take it off your hands.

Should you set up a PSA for 2026/27?

With Christmas coming, a PSA can be worth considering if, for example:

• your Christmas party or other annual events will cost more than £150 a head in total, or won’t be open to all staff, so the annual function exemption doesn’t apply
• you give gifts, vouchers or rewards that don’t meet the trivial benefit rules

To cover 2026/27, you’d need to apply by 5 July 2027. If you apply after the tax year has started, some items already put through payroll or a tax code may still need a P11D, so it pays to plan before the party season.

Changes on the horizon

The government ran a call for evidence on how PSAs work in practice, which closed on 15 September 2026. It has said this isn’t about changing how benefits are taxed. Separately, most benefits in kind are due to be reported through payroll from April 2027 (see our post on mandatory payrolling of benefits in kind). Any future Budget could also change employer taxes. For now, the dates and rates above still apply. For a wider overview, read benefits in kind explained.

How CMA Accountancy can help

We help small and medium-sized employers across Wigan, Appley Bridge and the wider North West with:

• checking whether your benefits and staff events belong in a PSA, are exempt, or need a P11D
• preparing your PSA calculation, or applying for one for 2026/27
• running your payroll and pensions so PAYE deadlines are handled every month

Whatever the size of your team (see who we help), we’ll explain your options in plain English.

Got a PSA bill to sort before 22 October, or wondering if you need one? Call Chris and the team on 01257 255521, email [email protected], or find us at 39 Skull House Lane, Appley Bridge, Wigan WN6 9DR. You can also get in touch online.