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SMP + 3% NI compensation accounting entries

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I'm trying to work out the correct accounting entries for my client who is an owner director and in the past year took maternity leave and claimed SMP.

They are the only person paid a salary which is below tax/NI thresholds, so SMP could not be offset against any payment due. HMRC sent a cheque reimbursement recently for the portiont that related to 2018/19 and will send the remainder at the end of this tax tear.

How would you record the payroll entries for the recoverable SMP and (3%) NI compensation? For example,

Statutory Maternity Pay £645.69
National Insurance compensation £19.38

I guess this would be a lot more straight forward if there was other employees being paid since the SMP would just be offset against the PAYE.

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By Sandnickel
15th Nov 2019 20:39

I would just credit the directors salary nominal. You could put it as a separate credit if you liked but as it's basically a reimbursement of wages i put it against the relevant code.

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By JDBENJAMIN
16th Nov 2019 01:19

Ask your accountant, and stop pretending to be one.

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Replying to JDBENJAMIN:
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By lionofludesch
16th Nov 2019 11:23

I have to say to the OP - what else don't you know ?

This is basic stuff.

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By lionofludesch
16th Nov 2019 11:21

The SMP bit goes against director's salary. In effect, the Government are paying this.

The 3% NI compensation gets deducted from NI. It's pointing out the obvious but the clue's in the name.

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By MrsNewb
17th Nov 2019 10:41

Thank you to those who have actually tried to help me with my queries. I appreciate it. Anyone who just wants to be impertinent and unhelpful perhaps consider witholding any further unwanted comments.

I still feel the solution offered is not ideal. If I post the expense to a profit and loss account (such as director's salary) it will look like an expense to the company, which it clearly isn't since it will be reimbursed by HMRC in full eventually. My thoughts are debiting the PAYE/NI (BS) account would be better. Then at the end of the year it is clear they is a refund still waiting to be received. I just can't work out how to journal the 3% to that account. The SMP could simply be entered there directly from the payment made from the bank account.

Anyone who is kind enough to consider this query, I'd be grateful if you'd explain reasons behind any suggestions made.

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Replying to MrsNewb:
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By lionofludesch
17th Nov 2019 11:51

Hi - if you follow the advice I gave you at 11.21 on 16th November, you won't have an expense for Director's salary. Or at least, not for the period during which SMP is paid.

PAYE is not, in itself, an expense. It should not appear on your profit and loss account. All the PAYE payments should be allocated to proper expenses, such as wages. Or director's salaries. Or whatever.

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Replying to MrsNewb:
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By Sandnickel
18th Nov 2019 07:19

Nobody suggested debiting your p&l. The correct entries (which both Lion & I told you) for the reimbursement & compensation are:

Dr paye account
Cr directors salary

If the director has been reimbursed in full then the only entry showing in the p&l for those months should be your compensation. (As income, I.e. a credit)

When you receive the money:
Dr bank
Cr PAYE

Your way will leave a balance on your BS.

Note - you should have posted your wages journal as normal.

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Replying to Sandnickel:
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By MrsNewb
18th Nov 2019 22:44

Thank you Sandnickel. I understand what you are saying now and I really appreciate the explaination.

Since HMRC have not fully reimbursed the SMP and NI yet (the part for this tax year), after entering the relevant journals, there remains a debit balance on the PAYE account just for this value.

Thank you again.

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