PAYE Settlement Agreements
Every recruitment agency wants to offer employee rewards, particularly after weathering the storm of the COVID-19 pandemic. However, before you dish out the drinks and golf weekends, you need to consider the tax implications.
It that sounds like we’re sounding the killjoy siren — we’re not, we totally endorse rewarding your employees for all their hard work and extra efforts. Saying thank you with a gift can really boost your corporate culture, hopefully increasing people retention and performance.
However, there are smart ways for recruiters to hand out benefits which attract a lower level of tax.
Think of trivial benefits as the first step of employee rewards. HMRC is not interested in chasing tax for smaller items, so it allows recruitment agencies to give ‘token gifts’ to employees. To qualify, you must ensure that your benefit is not:
There are no limits on the number of trivial benefits allowed in a tax year, unless you are a director in a close company when benefits are capped at £300. Employers no longer need to report trivial benefits to HMRC, but it is good practice to maintain good records just in case.
Any reward worth more than £50 per employee, will not count towards their taxable income or Class 1 National Insurance contributions. This increased tax burden may not be welcomed by employees, so recruitment agencies can accept tax liability through a PAYE Settlement Agreement (PSA).
As well as being a gesture of goodwill to employees, a PSA can save companies time. Your business comes to an arrangement with HMRC to settle the tax due via an annual calculation after the end of the tax year. Paperwork needs to be sent to HMRC by July 5 and any payments must be paid by October 22.
You might choose to use a PSA to avoid processing benefits through your payroll, to not include benefits on P11D forms or to pay Class 1B National Insurance on benefits, rather than Class 1A.
PSAs cover minor, irregular or impracticable benefits which can include everything from telephone bills to property relocations over £8,000. High-value benefits such as company cars, cash bonuses or financial loans are not allowed.
Everyone enjoys a party, especially the taxman as staff entertaining can be subject to tax and National Insurance.
Currently, a recruitment agency can spend £150 per employee, per year on annual events, such as a Christmas party, without any tax implications. Anything above £150 per person is classed as a benefit.
First you need to decide what expenditure might fall under trivial benefits and what will be classed as an annual event. Calculate what events might add up to the £150 per head threshold, and you might be able to declare a smaller event which tips you over the limit (e.g. if you have events worth £70, £70 and £20, simply declare £20).
Visits to a pub or restaurant after work can be hard to value, so we advise using a company credit card and making reasonable estimates on who was present, particularly directors.
Every other benefit can be reported by a recruitment agency using a P11D form, where you can document what each employee received. Each employee is taxed on their benefits, while the business pays Class 1A National Insurance on the value of benefits at a rate of 13.8%.
This is the simplest and cheapest solution for businesses, but be aware that your staff will be taxed on being entertained by the company. Your employees might sound the killjoy siren and refuse to join you in the pub.
Need help? If you need any help or advice around staff benefits, please do get in touch.