Employers who would like to provide medical insurance or other benefits to employees without the employee incurring a National Insurance liability can make a voluntary agreement with HM Revenue & Customs to meet the tax payable on the benefits in kind. This is known as a PAYE Settlement Agreement (PSA).
If HMRC agree your request for a PSA for any given tax year, you do not have to enter the items covered on the employer year end forms P9D or P11D. During the year you will not be required to operate PAYE on them, or assess he items for National insurance Contribution purposes if they would otherwise be liable for Class I or Class IA NIC.
You will actually pay Class 1B NIC on the items included in any PSAs and will be required to meet the tax liability on the total amount of the gifts to your employees. This will result in your employees paying no tax on the gifts they have received.