PAYE double-entry

[alittleworried]

Could somebody kindly explain the bookkeeping process after the months pay & deductions have been decided?

Let's say on the 10th of the month I run a fictitious payroll calc for an employee that is:

1000 gross
100 tax
50 nic
75 enic

What entries are passed through the bookkeeping immediately? And then what entries must follow once the employee is physically paid from the bank account?

 

[Tom McClelland]

Dr Wages £1000
Dr Employers NI £75
Cr HMRC Liability £225
Cr Net Pay £850

Then when employee is paid

Dr Net Pay £850
Cr Bank £850

Then when HMRC is paid

Dr HMRC liability 225
Cr Bank 225

 

[alittleworried]

Great, thanks for that. I presume HMRC liability and net pay are both 'other liability' accounts?

 

[alittleworried]

Ps I could really do with learning some PAYE basics Tom in all honesty. Any 1-2 day training courses you could recommend?

 

[Tom McClelland]

Great, thanks for that. I presume HMRC liability and net pay are both 'other liability' accounts?

Yes.

HMRC offers a PAYE roadshow, I think, which explains the basics and your obligations. So you could find out when they're next in your area. I've not been to one but some other members here say that they're very good.

 

[alittleworried]

Ok, will take a look on their site.

One other Q: fairly new LTD where directors have no income from any sources so far for 11/12. Could they declare a salary to make the most of their PA even though the business doesn't have the necessary funds to pay it? I.e just leave it as a liability on the balance sheet?

 

[Tom McClelland]

Yes, Just leave the DLA in credit to the value of the net pay is OK, I believe.

 

[alittleworried]

I presume in that case you just CR the DLA instead of Net Pay then never carry out the second part of your instructions?

 

[adamcooke]

If you're just paying one person with one set of journal updates, then yes, CR the DLA rather than Net Pay.

Otherwise, you can just debit Net Pay and credit DLA for the amount you don't wish to pay straight away.