In July 2025, Irish Revenue updated its guidance regarding PAYE Settlement Agreements (PSAs), as outlined in Tax & Duty Manual Part 42-04-73. The guidance includes significant changes to the methodology for calculating taxes due to PSAs.
These changes, while seemingly favourable to employers, serve as a reminder to employers of the importance of reviewing and submitting an annual PSA and suggest an increased focus in this area by Revenue.
Why this matters
The PSA facility allows employers to report details of qualifying “minor and irregular benefits” provided to employees during the tax year and to pay the taxes due on behalf of employees, outside of the PAYE system.
A PSA is submitted following agreement with Revenue, and historically the employer was required to calculate and pay the PAYE, USC and PRSI liabilities due on a grossed-up basis. “Minor” refers to minor in value and “irregular” in terms of frequency.
The updated guidance now provides that USC and PRSI should not be included when calculating the grossed-up value of minor and irregular benefits reported through a PSA (i.e. the grossed-up value should be calculated using the applicable income tax rate for the relevant employee only). USC and PRSI due are then calculated on the already grossed-up benefits, along with income tax.
For an employee on the higher income tax and USC rates, this means grossing up these benefits at 40 percent instead of 52.1 percent, resulting in potentially substantial savings for employers.
Key highlights
Combined PRSI rate
- In addition, Revenue has confirmed that a specified combined (employer and employee) PRSI rate of 14.95 percent applies to PSAs (increasing to 15.15 percent from 1 October 2025).
- With current employer and employee PRSI Class A1 rates totalling 15.25 percent (comprised of 11.15 percent and 4.1 percent respectively), the combined rate brings a further potential saving to employers availing of the PSA facility.
- Revenue has also clarified that the applicable PRSI rate for the purposes of the PSA is the rate in force at the time of the PSA submission (as opposed to the rate in force at the time the benefit was provided). So, in the case of the 2024 PSA (submitted on or before 23 January 2025), the 14.95 percent applies to all benefits included as part of the submission, and similarly, 15.15 percent should be applied in the case of the 2025 PSA (due 23 January 2026).
- Prior to this recent clarification, it was reasonably assumed that the rate in force at the time the benefit was provided was most appropriate, which would vary depending on whether it was provided before or after 1 October.
Small Benefit Exemption
- Revenue’s manual reiterates that PSAs relate to minor and irregular benefits only and that ‘relevant incentives’ that are exempt from tax under the provisions relating to Small Benefit Exemption (SBE) should not be reported through a PSA.
- Therefore, employers cannot opt to tax a relevant incentive through a PSA to enable an employee to avail of the SBE later in the year when additional benefits are provided.
Employer obligations and consequences
- Where an employer wishes to enter into a PSA with Revenue, an application must be made by 31 December of the relevant year.
- Where a PSA application is approved, the PSA filings should be submitted and paid no later than 23 January following the end of the tax year. If this deadline is not met, the PSA is null, and void and any benefits provided must be processed through payroll and may require a self-correction/voluntary disclosure of payroll records – this will have potential interest and penalty implications for the employer.
Items in PSA
The items that are typically included in a PSA vary greatly by employer, but common examples include:
- Non-cash gift vouchers (excluding tax-exempt items which fall under the SBE).
- Staff entertainment not falling within Revenue’s specific (and quite narrow) exemption.
- Provision of taxis to/from work that do not meet the conditions to be considered tax-free.
- Gym memberships.
Timing
The application to avail of the PSA mechanism in respect of the 2025 tax year must be submitted to Revenue by 31 December 2025. The PSA must be submitted, and the corresponding liability paid to Revenue on/before 23 January 2026.
KPMG insights
Steps to consider
Traditionally, the submission of a PSA offered an administratively efficient way to report and settle tax liabilities owing on non-cash benefits which are often difficult to capture in real-time.
Revenue’s updated guidance will result in lower tax liabilities on PSAs for many employers and while this is a positive development, it also signals a shift in Revenue’s expectations around PSA compliance and suggests a likely increased focus in this area by Revenue.
In light of the changes, employers may wish to review their current practices for capturing the payroll taxes due on “minor and irregular benefits”. Those not operating a PSA should consider using this mechanism where appropriate to avail of a practical way of remitting the tax liabilities owing on minor and irregular benefits provided to employees (given the potential for the tax liabilities to be lower via the PSA than if captured through payroll).
Employers also may wish to revisit PSAs that they filed with Revenue for 2024 to determine whether there is merit in seeking a refund of any overpaid PAYE, USC and PRSI from Revenue.
What’s next?
With Revenue’s increased focus on benefit reporting and enhanced compliance requirements, employers should anticipate continued scrutiny and potential further refinements to the PSA process. Regular review of Revenue guidance and proactive engagement with tax advisors will be essential to maintain compliance and capitalise on available cost efficiencies.
If employers have any questions or concerns about the scope of the update, its application and potential impacts, and appropriate next steps, they should consult with their qualified tax professional or a member of the GMS tax team with KPMG in Ireland (see the Contact us section).
Footnote
Part 42-04-73 - PAYE Settlement Agreements, Revenue Irish Tax and Customs, PAYE Settlement Agreements Part 42-04-73, July 2025
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