reporting salary?

reporting salary?

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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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Adam Spriggs profile image
By Adam Spriggs
17th Apr 2014 15:16

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.

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By johngroganjga
17th Apr 2014 16:49

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. 

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Replying to memyself-eye:
By adamblack
17th Apr 2014 20:39

Hi John

My actual concern is the book keeping of it.  How do you record it? what are the double entries?

The examples I'm looking almost make sense in theory:

First:

They have debited an asset with the net amount of wages

Second:

They have made a journal entry that:

Dr's salary expenses the gross amount (I think)

Dr's Employers NIC expense

Cr's income tax 

Cr's Employee NIC

and then the difference becomes net wages and is credited against the asset and that should zero but it isn't.

The example I'm working out is as follows:

Net wages debited to asset £8,202.30

Journal entry

                               DR                              CR

Total Gross     £10,130.13 (I have been been given taxable gross and total gross not sure which one to use)

E'ers NIC           £875.01

Income tax                                            £708.60

E'ee NIC                                               £758.49

Net wages (balancing figure)              £9538.05  (surely it should be £8202.30)

 

As it stands I have credited too much and my asset account isn't zero? I'm also not sure if I should be taking into account pre and post tax deductions along with student loans deductions etc and if so where should I be crediting these too?

 

Thoroughly confused??? could you help me out please I know its a long one and probably completely simple

 

KR

Adam

 

 

 

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
18th Apr 2014 12:27

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).

 

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By Brendonohoe
18th Apr 2014 12:55

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

 

 

 

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