Updated Guidance on PAYE Settlement Agreements
Updated Guidance on PAYE Settlement Agreements
Revenue have recently issued updated guidance in relation to PAYE Settlement Agreements (‘PSA’). A PSA allows employers to pay the income tax, USC and PRSI arising on certain benefits provided to employees, which are both minor and irregular, and for which the employer would otherwise have to deduct tax through the normal PAYE system. An employer may, for example, opt to enter into a PSA to preserve the incentive effect of a benefit which might otherwise be diminished if the employee had to subsequently pay tax on it. An employer wishing to enter into a PSA must notify Revenue of their intention by 31 December in the relevant tax year, and pay over the income tax, USC and PRSI due within 23 days of the year end.
Where an employer settles the tax due on such benefits, the taxable value of the benefit must be increased to take account of the further benefit which arises from the payment of the tax by the employer. The increased value is often referred to as the ‘grossed-up amount’.
The revised guidance sets out the methodology to be used in arriving at the ‘grossed-up amount’. In a departure from previous practice, the guidance states that USC and PRSI are not to be included for the purposes of calculating the ‘grossed-up amount’ upon which the tax, USC and PRSI are to be calculated. The exclusion of USC and PRSI from the gross-up calculation reduces the overall tax payable and may make the use of PSAs more attractive to employers. For an employee paying tax at the higher rate taxpayer, the saving is equal to €27 per €100 value of taxable benefits provided. Revenue are currently contacting employers who submitted PSAs on the ‘old basis’ to invite them to apply for a refund for prior years.
Executive Summary
PSAs may be used to provide small and irregular benefits to employees in a tax efficient manner. If intending to avail of a PSA, employers will need to be aware of the applicable conditions, including filing and payment deadlines, and the interaction of PSAs with the small benefit exemption. Employers who have previously submitted PSAs for prior years may wish to revisit these to determine if they are due a refund.
Our Employment Tax team has a wealth of experience of dealing with PAYE Settlement Agreements on behalf of our clients. For further information, please contact Mark Hynes (myhynes@bdo.ie) or your usual BDO contact.