HMRC’s call for evidence on PAYE Settlement Agreements (PSAs), which gathered evidence on how employers use PSAs in practice to inform how they might be improved, recently closed. This article summarises KPMG in the UK’s key submissions to HMRC.
What’s the context?
Hybrid working, wellbeing initiatives, inclusion programmes and changing workforce expectations have reshaped how employers support their people. Yet many employee benefit tax rules were designed for a different working environment, creating uncertainty and administrative complexity.
Against this backdrop, HMRC's review of PSAs is an opportunity to assess whether the regime remains fit for purpose and pursue practical reforms that improve clarity and digital administration while preserving its flexibility.
The workplace has moved on
Employee benefits now extend beyond traditional staff entertaining and long-service awards. Many organisations provide wellbeing support, employee network events, homeworking assistance, recognition initiatives and inclusion-focused activities as part of their wider people strategy. Small gestures such as bereavement flowers, welcome events for new joiners and team-building activities can support engagement and workplace culture. However, determining their tax treatment is not always straightforward.
When tax rules meet commercial reality
Tax outcomes can depend on how a benefit is purchased, not just its nature or value. For example, the treatment of a low-value welfare item may differ depending on whether it is bought directly by the employer, paid for using a corporate credit card or reimbursed to the employee, even though its underlying purpose is unchanged.
Inclusion, wellbeing and recognition initiatives may not fit neatly within traditional guidance, creating uncertainty for employers balancing compliance obligations with a positive employee experience.
Why PSAs continue to matter
PSAs remain an important compliance mechanism because they enable employers to settle tax and National Insurance liabilities centrally on certain minor, irregular or impracticable benefits and expenses. This provides a proportionate solution where payroll reporting or employee-level allocation would be difficult and avoids potentially confusing employee-facing reporting. It is therefore important that PSAs be retained.
The case for modernisation
Reform should make the PSA regime easier to operate, not more restrictive. Employers would benefit from clearer guidance and worked examples covering trivial benefits, corporate credit cards, reimbursed expenses, wellbeing initiatives and employee engagement activities.
There is also an opportunity to modernise administration. Although employers can submit a PSA calculation digitally, the current process has important limitations: calculations involving NIC category X employees cannot be submitted through the digital route, neither can amended calculations. Employers may also need to consolidate data from payroll, expenses, corporate cards, finance systems and third-party providers before completing spreadsheet-based calculations and submitting them through HMRC's digital services. Enhanced functionality, stronger authentication and structured submission routes could reduce duplication, strengthen audit trails and support more effective compliance.
Looking ahead
PSAs should evolve alongside workplace practices, employee expectations and compliance obligations. Reform should preserve the regime's flexibility while improving clarity and digital administration. Done well, modernisation can preserve valued flexibility while providing greater certainty, effective digital capability and guidance that reflects how organisations operate today.
What happens next?
We now await the outcome of HMRC's Call for Evidence and ministers' decisions on next steps. It’s possible that the timescale for this might be outlined at this year’s Budget.
In the meantime, as we near the end of this year’s PSA compliance season, employers should consider whether any operational issues arose that they’d like us to consider raising with HMRC as part of any future engagement on PSA reforms. Please contact the authors below, or your usual KPMG in the UK contact, if you’d like to talk through how PSAs and PSA reform might affect your business.
For further information please contact: