Payroll entry by journal

Here we explain how to post your payroll figures using journal entries.

When you should post payroll journals

You'll need to post payroll journals if you're running payroll at a frequency other than monthly, e.g. weekly. You may also post journal entries to adjust payroll figures, if your accountant advises this.

When you should not post payroll journals

Payroll journals aren't needed to run a monthly payroll. You can use the My Money > Payroll area to create monthly payroll entries whether you are filing your payroll online with HMRC through FreeAgent or using a different system.

Note: If you have posted payroll journals for the first few months of the current payroll year and now wish to start creating monthly payslips in FreeAgent, you need to make opening balance entries on your payroll profiles as if you were migrating from another system.

How to post payroll journals

We've used the example here of a weekly payroll.

For each employee, for each pay period (e.g. week), you need to know:

  • their gross pay
  • PAYE tax deducted
  • NI deducted
  • the amount of salary they'll actually receive
  • the employer's NI you'll pay for that person.

For example, Mary earns £2,000 each week, before tax and NI.

For the first week of September, 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 September payslip for the first week of that month, 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 HMRC: 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 HMRC. To do this, look under Accounting > Trial Balance as at Now.

Extra journal entries for the Employment Allowance

If you are claiming the Employment Allowance, then you will need to post extra lines in your payroll journals to show the reduction in your employer's NI liability:

  • Debit code 814 PAYE/NI
  • Credit code 402 Employer's NIC (or code 408 Directors' Employer's NIC if the Employment Allowance relates to directors)
  • 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 lines in your payroll journals.

    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 week, 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 extra journal lines: 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.

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