These new rules - which replace the previous, informal arrangements known as Annual Voluntary Settlements - provide a statutory framework for letting employers meet the tax on certain expenses and benefits in kind given to their employees.
The PSA scheme now reflects representations made in response to the consultative document issued earlier this year. In particular, the proposed earnings cap has been dropped. A Statement of Practice (SP5/96) which explains how PSAs will operate has also been issued.
A new leaflet, IR 155, telling employers how PSAs can help them by reducing their compliance costs will be available in early November.
1. Section 110 Finance Act 1996 provides the authority for the Inland Revenue to make regulations covering the operation of PSAs.
The regulations laid today - the Income Tax (Employments) (Amendment No. 6) Regulations 1996 (SI No.2631/1996) - amend the existing PAYE regulations (SI no. 744/1993).
Commencement of regulations
5. The regulations take effect for any PSA entered into for the tax year 1996/97. But transitional arrangements will ensure that agreements for 1996/97 entered into before the regulations come into force will still be valid. These agreements will be reviewed before they are renewed for the 1997/98 tax year.
National Insurance Contributions (NICs)
6. The tax paid under a PSA is the employer's liability and will not, as a consequence, be chargeable to NICs.
7. The Government's intention is that legislation will be introduced so that PSAs can apply for NICs as well as for tax. The Department of Social Security will publish draft proposals for consultation in due course. Meanwhile employers will have to account in the normal way for NICs on items, such as expenses payments, which are included in a PSA, but count as earnings for NICs purposes.