Hi there
I'm having trouble getting straight how to record salaries etc.
Is it the case the the Gross salary consists of:
1) Money actually received by employee
2) Income Tax deduction (through PAYE)
3)E'ee NIC deduction (through PAYE)
On top of the gross amount the E'er then pays NIC. Is it the case that the Gross salary (1-3 above) plus the employer NIC are deductible expenses in the P&L? Or is t just the amount received by the Employee that is deductible (1 above)
Any help much appreciated as ever
KR
Adam
Replies (5)
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Gross salary (PAYE, emee NI, and subseuqent net pay) AND the Employers NI are decutible against CT.
If only the net received by the employee was deductible there would be thousands, actually millions of pounds across the UK not being able to be written off against tax.
Over-thinking?
You have the right answer, as above, but perhaps you were over-thinking.
Look at it this way. Double entry forces you to post the PAYE paid by the company as a debit entry somewhere - does it not? If the debit is not in the P& L account it would have to be an asset in the balance sheet, wouldn't it? And what sort of asset would it be, and how big would it be in five years time?
a_spriggs assumed that you were asking about what was allowable for corporation tax. You might have been, although you didn't mention tax.
If your concern is with the tax treatment of wages, think about why you would add back wages charged in the profit and loss account, or any part of them, in a CT computation.
Hi Adam
You will need to see a copy of the payslip as it would appear that there are other deductions from pay that need to be accounted for. As you say these might be student loan repayments etc.
Only the payslip (or a report from the payroll software) will allow you to reconcile how the net payment was calculated.
In answer to your specific questions you post the gross salary not the taxable gross (which will be after the employee's tax free amount).
The double entry for a student loan deduction is:
Dr Net Wages Control (as this is a dedcution from the amount payable to the employee)
Cr PAYE & NIC Control (as the amount of the student loan deducted will be paid over to HMRC when they pay over the PAYE & NIC).
Double Entry
Adam,
It looks like something's missing alright. Your figures suggest that Net Wages should be £8,663.04 (Gross wages less PAYE and EEs NIC) so if the employee was only paid £8,202.30 then something else must have been deducted, either correctly or incorrectly.
Apart from that, the simplest way to record payroll is as follows:
Dr Wages (P+L) 10,130.13
Dr Employer's NIC (P+L) 875.01
Cr PAYE/NIC Control a/c (B/S) 2,342.10 (this is PAYE + Total NIC)
Cr Net Wages Control a/c (B/S) 8,663.04
Payments to the employee(s) and HMRC are then debited to their respective Control a/cs.
Any balances on the Control a/cs will then need to be explained and/or reconciled.
BD