HMRC’s PAYE Settlement Agreements call for evidence closes on 15 September 2026. Published on 23 June as part of Tax Update 2026, this is not a soft “tell us what you think” exercise that CFOs can safely ignore. It is a structured evidence grab on how employers actually decide what sits in a PSA, how gross-up is done, and whether the contract-based regime should survive.
If you sign off employment-tax packs, run multi-entity payroll, own PE portfolio compliance, or sit on an audit committee that still treats the PSA as a quiet annual catch-all for staff entertainment, treat the next four days as operating risk. The underlying tax of benefits is out of scope. How you use the PSA is firmly in scope — and HMRC’s illustrative examples already draw a harder line than many payroll teams still apply.
What a PSA actually is — and what it is not
A PAYE Settlement Agreement is a voluntary arrangement under ITEPA 2003 ss703–705 that lets the employer settle income tax and Class 1B NICs on certain expenses and benefits on behalf of employees, instead of running those items through payroll or P11D. Payment is due by 22 October following the tax year (19 October if paying by post) — see HMRC’s deadlines and payment page.
The filter is narrow by design. Items must be minor, irregular or impracticable to report under the normal routes. HMRC’s plain-English guide on what’s included is still the operational starting point:
- Minor — small gifts and vouchers, certain incentive awards, staff entertainment tickets, overnight incidental expenses above the daily limit
- Irregular — not weekly/monthly and not contractual (relocation above £8,000, overseas conference costs, spouse travel, company holiday flat)
- Impracticable — hard to value or allocate per employee (shared staff entertainment that is not exempt, shared cars, personal care)
You cannot park wages, company cars, bonuses, round-sum allowances or beneficial loans in a PSA. Trivial benefits (£50 or less, non-cash, not reward-for-work, not contractual) sit outside both P11D and PSA if the exemption conditions hold. Confusing “trivial” with “minor enough for PSA” is one of the most common board-level blind spots.
BDO, Azets and CIPP have all made the same commercial point for years: a PSA is a settlement route for hard-to-attribute residual benefits, not a substitute for payrolling or a dumping ground for high-value named packages.
What HMRC is actually asking
The full paper — PAYE Settlement Agreements (PSAs) — runs through 24 questions. KPMG and Ross Martin correctly frame it as practical operation, not a rewrite of the benefits code.
The CFO-relevant clusters are:
1. Boundary tests — how you decide “minor / irregular / impracticable”; how clear the line is versus trivial benefits
2. Contract mechanics — time and cost to establish, amend and maintain PSAs; whether a criteria-based election could replace the enduring contract
3. Calculation method — band allocation, gross-up, and employees with no PAYE tax liability at this employer
4. Scale and sector — whether SMEs, hospitality, retail and events businesses carry disproportionate burden
HMRC’s stated principle is blunt: where both the recipient and the cost are identifiable, use standard PAYE / P11D / payrolling — not the PSA.
Suitable (illustrative)
- Occasional staff buffet for ~250 people where individual consumption cannot be measured
- Shared post-event taxis charged per journey, not per head
Not suitable (illustrative)
- Private medical insurance with per-employee premiums and named policies
- Chauffeur-driven car for a named senior
- Employer loan to a named employee
If your current PSA still absorbs medical, named transport, or clearly attributable loans because “we’ve always done it that way”, you already have a compliance story problem — whether or not the call for evidence produces legislation.
Why CFOs should care before 15 September
Three practical reasons, none of them academic.
1. The evidence base will drive the next rewrite.
HMRC has opened the door to a definitive eligible-items list and to dropping the contract model in favour of an election-plus-declaration. If PE portfolio companies, mid-market groups and hospitality employers stay silent, the summary of responses will be written by the loudest software vendors and large-employer payroll houses. Partial responses are explicitly welcome — email payeconsultations@hmrc.gov.uk.
2. Gross-up is board cash, not a payroll footnote.
When the employer settles tax and Class 1B NICs, the cost is grossed up. Guidance on apportioning employees by marginal rate (including Scottish and Welsh bands) and treating zero-PAYE-liability employees at their first chargeable rate is exactly where disputes and under-provisions land. Questions 16–20 of the call for evidence are a direct invitation to put real calculation friction on the record. If your October settlement still uses a single highest-rate gross-up “for simplicity”, quantify that cost before someone else designs the reform around cleaner models you do not run.
3. Payrolling and P11D reform are already squeezing the residual.
Voluntary payrolling of benefits and the wider push toward in-year settlement leave less honest room for “everything leftover goes in the PSA”. The call for evidence repeatedly asks how PSAs interact with other reporting routes. Audit committees should expect the residual bucket to shrink, not expand.
Deloitte’s 2026 tax landscape puts employment-tax process change in the same package as umbrella joint-and-several liability and EMI expansion. PSA administration sits in that same operating stack: benefits policy, payroll configuration, agent instructions, and the October cash settlement.
The locks every CFO should put on now
Do these before responses close — and keep them on the year-end employment-tax checklist regardless of the government response.
1. Inventory the live PSA. List every category currently covered. Map each item to minor / irregular / impracticable — or flag it as outside scope against HMRC’s medical / chauffeur / loan examples.
2. Separate trivial, exempt and PSA. Confirm Christmas parties and similar still clear the annual functions exemption where claimed; do not double-count into PSA.
3. Test payrolling candidates. Named, regularly provided benefits with clean unit costs (medical, gym, some insured benefits) belong on P11D or payrolling, not on a settlement agreement designed for impracticable allocation.
4. Document gross-up method. Band split, Scottish/Welsh rates, nil-liability employees, single-rate vs multi-rate gross-up. Put the method in the tax pack the FD signs.
5. Diary the October payment. 19/22 October is a hard cash date. Late PSA settlement is a different risk class from late P11D.
6. Respond if you have friction. SMEs, multi-entity groups, hospitality and events operators with real allocation pain should answer Questions 9–15 and 22 even if they skip the profiling fluff. Silence is treated as consent to whoever does write in.
7. Agent and software alignment. If a bureau runs your PSA, require a written confirmation that included items still meet the impracticable test — not just last year’s schedule rolled forward.
What this is not
This call for evidence does not change the taxability of benefits. It does not invent a new charge. It does not extend Class 1B. It does not rewrite trivial benefits. Treating it as “just another HMRC survey” is the error. HMRC is collecting the evidence it will use to decide whether the contract model, the eligible-item boundary, and the calculation rules still fit a world of digital payroll and payrolled BIKs.
Tax Update 2026 bundled PSAs with customs modernisation (also closing 15 September), distributions reform (14 September), and reckless untrue statements. The pattern is process first, legislation second. CFOs who only engage when the Finance Bill lands will find the design choices already made.
Bottom line
By 15 September 2026, either:
- your organisation has stress-tested the live PSA against HMRC’s own “recipient + cost identifiable → not PSA” principle and, where relevant, put operational friction on the consultation record; or
- you are waiting to discover what a cleaner, stricter residual regime looks like after someone else’s evidence shaped it.
The PSA was never meant to be the benefits dustbin. HMRC is now asking, in writing, whether employers still treat it that way. Answer them — or clean the dustbin yourself before the rules do it for you.
Mark Hendy is a PE-facing CFO and tax agent. This is professional commentary, not advice for a specific employer. Check facts against GOV.UK and take advice on your arrangements.