Payroll entry by journal

Here's how to post your payroll figures into FreeAgent if you're a UK user and don't use the FreeAgent payroll.

You need to use journal entries.

Here's what they need to be:

Payroll journals

You need to know, for each employee, for each pay period (e.g. week, month), their gross pay, PAYE tax deducted, employee's NI deducted, and the amount of salary they'll actually receive - and also the employer's NI you'll pay for that person.

Let's take an example.

Mary earns £2,000 each month, before tax and NI.

For April 2011, her PAYE tax due is £275.20, employee's NI £167.76, which means her net pay, the amount she will actually receive, will be £1,557.04 (2,000 - 275.20 - 167.76).

Her employer will pay £194.71 in employer's NIC.

So the figures to post to FreeAgent, dated the same day as Mary's April payslip, will be:

• Debit code 401 Salaries £2,000 (Mary's gross pay) - or use code 407 Directors' Salaries if Mary is a director of the company
• Debit code 402 Employer's NIC £194.71 (the amount of employer's NIC only) - or use code 408 Directors' Employer's NIC if Mary is a director
• Credit code 814 PAYE/NI £637.67 (the total amount of tax and NIC due to HM Revenue: 275.20 + 167.76 + 194.71)
• Credit code 902 Salary and Bonuses for Mary £1,557.04 (Mary's net pay)
• This will ensure the correct figures appear in the Accounting section of FreeAgent.

Journal entries won't appear on the Taxes > PAYE and NI screen, though, so you'll need to check the balance on code 814 to see how much you owe to HM Revenue.  To do this, look under Accounting > Trial Balance as at Now.

Money paid to Mary

When you pay Mary her salary, explain that payment as Money Paid to User > Net Salary and Bonuses.

Paying HMRC

When you pay the PAYE and NI over to HMRC, explain that payment as a Payment of PAYE and NI, which you'll find under the Taxes heading in the Categories list.

Pension contributions

If you are deducting pension contributions from your employee's wages, and paying these to the pension provider, you will need to post additional journal entries.

There will also be other entries if you are adding to your employee's contributions.

Re-visiting the above example, let's say that Mary has asked you to deduct £100 from her wages each month, which you pay on her behalf to the pension fund.  You also add an extra £50 to that.

The amount to post to code 902 would therefore be £1,457.04, which is the amount Mary will actually receive - £1,557.04 - £100.

You would then credit code 813 Pension Creditor with £100.

For the pension contributions you, as an employer, would pay, post two journal entries:  Credit code 813 Pension Creditor, debit code 403 Pensions (or 409 Directors' Staff Pensions for directors), with the amount you will add - in this case £50.  These entries should also be dated the same day as Mary's April payslip.

Paying the pension company

When you pay the pension company the £150, explain that payment with type Other Money Out and reason Pension Creditor.