Paying a PAYE Settlement Agreement: use the PSA reference, not the PAYE Accounts Office reference

A PAYE Settlement Agreement lets an employer make one annual payment covering tax and Class 1B National Insurance on qualifying small, irregular or impracticable employee expenses and benefits. The payment has its own deadline and reference. Using the ordinary PAYE Accounts Office reference can send the money to the wrong HMRC account.

A PSA settles tax and Class 1B NIC on agreed benefits centrally

HMRC says a PAYE Settlement Agreement can cover qualifying expenses and benefits so the employer pays the tax and Class 1B National Insurance rather than the employee. Once an item is properly included in the PSA, the employee generally does not need it processed through the ordinary individual reporting route for that year.

Keep records of the benefits, recipients and tax calculations. A PSA payment is not a round estimate the finance team chooses each October. It is the settlement of a specific agreed liability calculated from the covered benefits and employees' relevant tax rates.

Electronic PSA payment is due by 22 October after the tax year

GOV.UK says the electronic-payment deadline is 22 October following the tax year to which the PSA applies, or 19 October for payment by post. For the tax year ended 5 April 2026, electronic funds must therefore clear by 22 October 2026.

HMRC can charge interest when payment is late. Build the October date into the annual employer-tax calendar rather than relying on a reminder after the summer P11D and Class 1A process has already finished.

Use the PSA reference from HMRC, not the normal PAYE Accounts Office number

HMRC's August 2026 Employer Bulletin warns employers not to use the ordinary PAYE Accounts Office reference for a PSA payment. The employer should use the PSA reference supplied by HMRC, typically in a format such as XA followed by digits.

If the normal PAYE reference is used, HMRC can allocate the payment to the ordinary PAYE account and continue sending reminders for the PSA even though the company believes it paid. Put the PSA reference on the payment approval form so the second approver checks it as well as the bank details.

Payment routes have different lead times

GOV.UK says employers can pay a PSA by approving a payment through the bank account, one-off Direct Debit, debit or corporate credit card, Faster Payments, CHAPS or Bacs. Same-or-next-day and three- or five-working-day timings vary by method.

If the company is paying on 21 October, a first-time Direct Debit that needs five working days is too late. Choose the route based on the time remaining and the bank's transaction limit. The due date is when HMRC needs the money, not the date the payment setup began.

Reconcile the grossed-up tax and Class 1B NIC before release

PSA calculations can be unintuitive because the employer is paying tax on behalf of employees and the amount can need grossing up. The Class 1B NIC is also calculated on the relevant PSA amount. Finance should receive a detailed calculation from payroll, tax advisers or the internal tax team.

Compare the final HMRC-agreed or calculated liability with the bank payment. If the payment is £85,000 but the supporting schedule totals £79,000, stop and investigate. An unexplained difference can become difficult to unwind after HMRC allocates the money.

Keep the agreement, calculation, reference and bank evidence together

HMRC's PSA manual says employers must retain records of the relevant payments and costs and enough information to support the employees' marginal tax-rate calculations. Store the PSA agreement, annual computation, HMRC reference and payment confirmation in one file.

After payment, check whether HMRC shows the PSA as cleared. If reminders continue, verify allocation before paying again. Duplicate PSA payments can be harder to identify because the settlement is annual and sits outside the normal monthly PAYE cycle.

A PSA can cover items such as small gifts, staff entertainment or other agreed benefits where the employer takes on the employees' tax. Maintain a year-to-date PSA ledger instead of reconstructing the entire population after the tax year ends. That lets tax teams estimate the October cash requirement and identify items that should instead have gone through payroll or P11D.

Before the bank payment, compare the PSA reference on HMRC correspondence with the payment template character by character. The wrong reference is especially costly because the amount can be large and annual, so the allocation error may not be noticed until reminders arrive weeks later. Keep the payment confirmation in the same folder as the signed PSA calculation.