Form P626 is the written contract that puts a PAYE Settlement Agreement (PSA) between an employer and HMRC into force. You don’t complete it yourself. You apply to HMRC describing the expenses and benefits you want the PSA to cover, and if HMRC agrees, they send you a draft P626 to sign and return. Once HMRC countersigns it and issues a PSA02 letter, your company can pay the tax and National Insurance on those benefits in a single annual lump sum instead of processing each item through payroll or on P11Ds.
How to Get a P626
You apply for the PSA; HMRC produces the P626. The deadline to apply is 5 July following the end of the tax year you want the agreement to cover. Applying before the tax year starts is allowed and avoids the extra P11D reporting that comes with mid-year applications.
Applying Online
You’ll need your employer PAYE reference (a three-digit number, a forward slash, then a mix of letters and numbers, for example 123/AB456), your business name and address, a telephone number, and an email address. Describe the expenses and benefits you want included. HMRC reviews the request and contacts you if there are issues. If approved, you get a confirmation by email or letter, and the PSA documents follow by post.
Applying by Post
Write to HMRC setting out the expenses and benefits you want covered, and send it to:
PAYE Settlement Agreements
HM Revenue and Customs
BX9 2AN
Once HMRC agrees the scope, they post you a draft P626. You sign it and send it back. HMRC countersigns and returns a countersigned copy together with a PSA02 letter, which together form your PSA.
Applying Through an Agent
An accountant or tax agent can apply for you, but they’ll need a signed letter of authority unless they already hold HMRC authorisation for your account. HMRC’s employer helpline can talk you through the application and the calculation if you want guidance before you apply.
What the Agreement Can and Can’t Cover
A PSA is designed for benefits and expenses that are minor, irregular, or impracticable to allocate. Minor items are low-value perks like small gifts or seasonal treats. Irregular items are one-offs that don’t recur on a predictable schedule for the same employee, such as relocation costs. Impracticable items are benefits where splitting the value between individual employees would be unreasonably difficult, with shared staff entertainment the classic example. Benefits already covered by a statutory tax exemption don’t belong in a PSA because there’s no liability to settle.
Several things stay out. You cannot include wages, high-value benefits like company cars, or cash payments such as bonuses, round-sum allowances, and beneficial loans. Benefits provided through salary sacrifice are also excluded. If you apply after the tax year has started, anything you’ve already put through an employee’s tax code or PAYE deductions that year has to be reported separately on form P11D.
What Happens After You Sign the P626
The countersigned P626 and the PSA02 letter together are the binding agreement. Until the countersigned copy is back in your hands, the PSA isn’t legally in force, which matters if you’re working close to a deadline. Once in place, the agreement rolls forward automatically each tax year with no need to reapply.
To add or drop benefits, send the details to the HMRC office that issued your PSA. They’ll send a revised P626 to sign and return. Either you or HMRC can cancel the agreement outright. Keep both digital and physical copies of the signed P626 and the PSA02 letter as your proof during any compliance check.
Calculating What You Owe
Because the employer is paying the tax on the employee’s behalf, the benefit value is treated as a net figure and has to be grossed up. The steps:
- Multiply the total value of benefits for each group of employees by their income tax rate: 20% for basic-rate, 40% for higher-rate, 45% for additional-rate.
- Gross up each tax figure by multiplying by 100 and dividing by (100 minus the rate). Basic-rate divides by 80; higher-rate by 60; additional-rate by 55.
- Add the grossed-up tax amounts across the rate bands for the total income tax due.
- Calculate Class 1B National Insurance at 15% on the combined total of the original benefit values plus the grossed-up tax. The Class 1B rate for 2026–27 is 15%.
You need to know which tax band each employee sits in, which is what makes the calculation time-consuming for larger workforces.
Reporting and Payment Deadlines
After the tax year ends on 5 April, you report the value of included items to HMRC using form PSA1 or your own informal calculation. The PSA typically requires this by 31 July following the tax year end. That’s a contractual deadline written into the agreement rather than a statutory one, but missing it causes problems with HMRC.
The payment deadline is firm. Tax and Class 1B NICs must reach HMRC by 22 October following the tax year, or by 19 October if you pay by cheque through the post. Accepted methods include online or telephone banking via Faster Payments, CHAPS, or Bacs, Direct Debit, debit or corporate credit card, and payment at your bank or building society.
Late payment triggers automatic interest from the due date, whether or not the final amount has been agreed. The HMRC late payment interest rate is 7.75% as of January 2026, and it accrues daily.
Records to Keep
HMRC requires employers to keep records of all taxable expenses and benefits, including those covered by a PSA, for three years from the end of the tax year they relate to. That covers your PSA calculations, the signed P626, the PSA02 letter, and supporting documentation for each benefit included. Inadequate records can lead HMRC to estimate the amount owed and charge a penalty of up to £3,000.