PSA vs P11D: A Practical Guide to Benefits in Kind
Providing benefits to employees, whether it’s a company car, private medical insurance, or even staff entertainment, comes with tax responsibilities.
But how you report and pay that tax depends on the type of benefit and how you choose to deal with it.
Two key areas employers need to understand are:
Benefits in Kind (P11D reporting)
PAYE Settlement Agreements (PSAs)
Getting this right can simplify your admin and improve the employee experience.
What Are Benefits in Kind?
Benefits in Kind are non-cash perks provided to employees or directors.
Common examples include:
Company cars
Private health insurance
Travel and entertainment
Childcare (in some cases)
In most cases, these benefits are:
Taxable on the employee
Subject to National Insurance for the employer
How Are Benefits Normally Reported?
If you provide benefits, you usually need to report them to HM Revenue and Customs.
There are two main ways to do this:
1. Through Payroll (“Payrolling Benefits”)
Benefits are taxed in real time via payroll
Employees pay tax throughout the year
You still submit a P11D(b) to report Class 1A National Insurance
NB: all employers will be required to report benefits through payroll from April 2027.
2. End-of-Year Reporting (P11Ds)
If you don’t payroll benefits:
You must submit a P11D form for each employee
Submit a P11D(b) for total Class 1A NIC
Employees receive a copy of their benefits
Key deadlines:
6 July – Submit P11Ds and provide employee copies
22 July – Pay Class 1A NIC (19 July by post)
What is a PAYE Settlement Agreement (PSA)?
A PAYE Settlement Agreement (PSA) is a way for employers to deal with certain benefits in one annual payment, rather than reporting them individually.
It allows you to cover:
Tax on behalf of employees
National Insurance (Class 1B instead of Class 1A)
If an item is included in a PSA, you do not need to:
Put it through payroll
Include it on a P11D
Pay Class 1A NIC on it
What Can Be Included in a PSA?
To qualify, items must be minor, irregular, or impracticable.
Minor
Small gifts or vouchers
Staff entertainment (e.g. event tickets)
Incentive awards (like long-service recognition)
Telephone bills
Irregular
Relocation costs above £8,000
Overseas conference costs
Spouse travel expenses
Occasional use of company assets (e.g. holiday property)
Impracticable
Shared benefits that are hard to split between employees
Non-exempt staff entertainment
Items difficult to value individually
What Cannot Be Included?
PSAs are not a catch-all.
You cannot include:
Wages or salary
Bonuses
High-value benefits (e.g. company cars)
Cash payments or allowances
Beneficial loans
Also note:
Trivial benefits are already exempt, so don’t need to be included
IR35/off-payroll workers are excluded
When Does a PSA Make Sense?
A PSA is particularly useful when:
You want to avoid burdening employees with small tax charges
Benefits are one-off or difficult to allocate
You want to simplify administration
It effectively allows the employer to “pick up the tax bill” in a streamlined way.
How to Apply and Key Deadlines
To set up a PSA:
Apply online (or by post) to HMRC
You can appoint an agent to do this for you
Deadlines:
5 July – Deadline to apply (following the relevant tax year)
22 October – Deadline to pay tax and Class 1B NIC (19 October by post)
Once in place:
You must report the totals annually
HMRC will not send confirmation unless there’s an issue
PSA vs P11D: Which Should You Use?
In practice, most businesses use a mix:
P11Ds or payrolling → for regular, higher-value benefits
PSA → for smaller, irregular, or administrative-heavy items
The right approach depends on:
The type of benefits you provide
How often they occur
Whether simplicity or cash flow is the priority
Record Keeping Still Matters
Whichever route you take, you must keep clear records of:
All benefits and expenses provided
How they’ve been treated (payrolled, P11D, or PSA)
Calculations used for reporting
This ensures your filings are accurate and defensible if reviewed.
Final Thoughts
Benefits in Kind can quickly become complex, particularly as businesses grow and offer more to employees.
Using tools like payrolling and PSAs correctly can:
Reduce admin
Avoid errors
Improve employee experience
But the key is making sure each benefit is treated in the right way from the start.