Payroll Journal

[smithy55]

My Bookkeeper is away and wanted to do a journal for payroll. Is this correct?:

Employers NIC (Expense): Debit
Gross Pay (Expense): Debit
PAYE Tax (current liability): Credit
Net Pay (current liability: Credit
Total NIC (current liability) Credit

Should it not be net pay as expense for P&L rather than Gross Pay as that includes employee tax & NI?

 

[Tom McClelland]

Yes. I make PAYE and total NIC the same account called HMRC Liability because I've never seen any particular reason to split the two liabilities as they are almost invariably settled with a single joint payment.

 

[smithy55]

Ok, I thought that was correct but is it not the net pay that needs to go on the profit and loss account as employee NI and tax which is part of gross pay is just collected and paid on behalf of the employee.

 

[Tom McClelland]

Ok, I thought that was correct but is it not the net pay that needs to go on the profit and loss account as employee NI and tax which is part of gross pay is just collected and paid on behalf of the employee.

The cost to the business is gross pay + employers NI so these are expense accounts.

The net pay is an immediate liability, usually settled straight away with a bank payment to the employee

HMRC is a liability with payment deferred until after the 6th of the month.

The split between net pay and HMRC is irrelevant to the costs of the business.

 

[smithy55]

Thank you. glad my journal was correct. The gross pay is an expense regardless that paye tax and employee NI are paid on behalf of the employee - correct?