A contract is signed between the employer and HMRC agreeing that:
- The employer pays the employee’s liabilities.
- No P11D entries are made in respect of the benefit.
- The employee should not report the benefit on their Self Assessment Tax Return.
This is a reasonably expensive process, as the tax paid is considered part of the gift, and Class 1B National Insurance Contributions, (payable by the Employer only) currently due at 13.8% is also charged on the combined value of the gift and the associated income tax arising.
A PSA should be applied for before the 6 July following the end of the tax year in which the benefits were provided (the P11D submission deadline), and the computations submitted generally by 31 July or 31 August as specified by HMRC.
The Income Tax and Class 1B NIC must be paid to HMRC by 22 September following the end of the Tax Year if paying electronically, or by 19 September if paying by cheque.