How to Complete and Submit Form PSA1: Grossing Up and Class 1B NIC

To complete Form PSA1, you tell HMRC the value of the expenses and benefits covered by your PAYE Settlement Agreement, sort those benefits by the tax rate the receiving employees pay, gross up the income tax due, add Class 1B National Insurance, and submit the figures online through GOV.UK (or by post as an informal calculation) by 31 July following the end of the tax year. Payment of the resulting tax and NIC is then due by 22 October, or 19 October if you pay by cheque through the post.¹

What to Gather Before You Open the Form

HMRC’s online PSA1 asks for a small set of headline details and then a breakdown of the benefits themselves. Before you start, have the following to hand:²

Your email address, for online submissions.
The tax year the notification covers.
Your employer PAYE reference number.
Which tax rates apply to the employees who received the benefits — England and Northern Ireland, Wales, or Scotland — since the bands differ.

You also need a full breakdown of what was provided: the type of expense, how many employees received it, and the total spend in each category. That means pulling together receipts, invoices, expense reports, and internal accounting records for the whole tax year. Sort the recipients into tax-rate groups now, because the grossing-up calculation is done separately for each group.

Grossing Up the Income Tax

The core of the PSA1 is the grossing-up calculation. Because your business is paying the tax the employee would otherwise have paid, HMRC treats that tax payment as a further taxable benefit. You end up paying tax on the tax. HMRC’s GfC1 guidance sets out the method in two steps: multiply the total benefit value for a group of employees by their tax rate to produce an initial figure, then apply the formula Answer × 100 ÷ (100 − tax rate) to arrive at the grossed-up tax due. Repeat for every rate group and add the results.³

Worked Example

Say you provide a £50 benefit to 800 basic-rate (20%) employees and 200 higher-rate (40%) employees, giving £50,000 in total benefits.

For the basic-rate group: 800 × £50 = £40,000. Tax at 20% = £8,000. Grossed up, £8,000 × 100 ÷ 80 = £10,000.

For the higher-rate group: 200 × £50 = £10,000. Tax at 40% = £4,000. Grossed up, £4,000 × 100 ÷ 60 = £6,666.67.

Total grossed-up income tax due: £16,666.67.³

Adding Class 1B National Insurance

On top of the grossed-up income tax, you owe Class 1B NIC. From 6 April 2025 the Class 1B rate is 15%.⁴ Class 1B is calculated on the combined figure of the original benefit value plus the grossed-up tax.

Using the example above: £50,000 in benefits + £16,666.67 grossed-up tax = £66,666.67. Class 1B at 15% = £10,000. The total PSA liability is £16,666.67 in tax plus £10,000 in NIC, giving £26,666.67.

Scottish Rates vs the Rest of the UK

Employees taxed under the Scottish rates are grossed up separately from employees in England, Wales, and Northern Ireland. For 2025/26, Scotland has six bands above the personal allowance:⁵

Starter rate 19% — £12,571 to £15,397
Basic rate 20% — £15,398 to £27,491
Intermediate rate 21% — £27,492 to £43,662
Higher rate 42% — £43,663 to £75,000
Advanced rate 45% — £75,001 to £125,140
Top rate 48% — over £125,140

For England, Wales, and Northern Ireland the 2025/26 rates are 20% basic, 40% higher, and 45% additional.⁶ The online PSA1 asks you to specify the tax regime for each employee group, so the form itself flags the split.² Applying an English 20% rate to a Scottish intermediate-rate employee at 21% will produce an underpayment that HMRC will pursue.

Submitting the Calculation

You have two routes.

The online PSA1 form on GOV.UK is the faster option. Sign in with your Government Gateway user ID and password, create one if you don’t have it, or use an email confirmation code. The form takes you through each section and submits directly to HMRC.²

Alternatively you can send an informal calculation — a spreadsheet or document in any format — by post to:

PAYE Settlement Agreements
HM Revenue and Customs
BX9 2AN

HMRC warns that informal calculations take longer to review and may prompt follow-up questions.²

HMRC’s GfC1 guidance states the calculation should reach them by 31 July following the end of the tax year.³ Paying on time without submitting the calculation still creates problems, because HMRC has no way to verify what the payment covers.

Paying What You Owe

All income tax and Class 1B NIC due under the PSA must be paid by 22 October following the tax year the agreement covers. If you pay by cheque through the post the deadline is 19 October.¹

HMRC accepts several methods, with different processing times:⁷

Same or next day: approving payment through your online bank account, Faster Payments or CHAPS via online or telephone banking, or debit or corporate credit card online.
Three working days: Bacs via online or telephone banking, Direct Debit (if already set up with HMRC), or cheque through the post.
Five working days: Direct Debit if you have not set one up with HMRC before.

Quote your PSA reference number on the payment. Without it HMRC cannot allocate the funds, and the payment can be recorded as late even if your bank sent it on time. Track the transfer on your bank statement and confirm it has cleared before the October deadline, especially with a three- or five-day method.

If You Miss the Deadline or Get the Numbers Wrong

Late payment attracts interest. HMRC’s late payment interest rate is 7.75% per annum as of January 2026, accruing daily from the statutory due date until the payment clears.⁸ The rate changes periodically, so check the current figure on GOV.UK before you budget.

Errors on the PSA1 itself carry inaccuracy penalties, set as a percentage of the additional tax that should have been paid:⁹

Lack of reasonable care: 0% to 30%.
Deliberate error: 20% to 70%.
Deliberate and concealed: 30% to 100%.

HMRC can reduce a penalty if you disclose the error voluntarily, help work out the underpayment, and give access to your records. Coming forward before HMRC spots the problem typically produces the lowest figure within each range.⁹

1
HM Revenue & Customs. PAYE Settlement Agreements – Deadlines and Payment
2
HM Revenue & Customs. Tell HMRC the Value of Items in Your PAYE Settlement Agreement
3
HM Revenue & Customs. Help with PAYE Settlement Agreement Calculations – GfC1
4
GOV.UK. National Insurance Rates and Categories – Contribution Rates
5
mygov.scot. Scottish Income Tax – Current Income Tax Rates
6
GOV.UK. Income Tax Rates and Personal Allowances
7
HM Revenue & Customs. Pay a PAYE Settlement Agreement – Overview
8
HM Revenue & Customs. HMRC Interest Rates for Late and Early Payments
9
HM Revenue & Customs. Penalties – An Overview for Agents and Advisers