PAYE and NI entries

[Debora]

How should PAYE and NI be entered into Sage Instant Accounts? I have been entering them in as 2210 & 2211 only but they are not showing in the Profit and Loss report due to the area of the coding used. Am I right to say that they should be given codes in the 7000s as well as in 2210 & 2211 and the journals would cancel them out in the 2210 & 2211 but the entries in the 7000s would be the ones reconciled to the bank account? If so, I have been reconciling the 2210 & 2211 entries as these have been the only ones I have entered. How do I correct this?

[brucedenney]

Sort of... where are you posting the payment of the wages?

You need to do a wages journal. http://support.makingithappen.co.uk/gui ... .htm#Wages

In the balance sheet we track who owes how much to whom, in the P&L we track costs we use the balance sheet to keep track of money owed by us and to us.

In the most basic simple set up you can have 2 balance sheet control accounts, one for the (tax and ni) and one for the wages. You have Tax and NI split already but you should have a third account for wages typically this is 2220. As we normally pay tax and ni in one lump sum, splitting them in the nominal is a hassle so I normally use one account for them both.

So this is how it works:

Scenario

Bill works for me. (Round number for simplicity)
He earns £1000 in the month. He has £200 deducted in tax and NI and I have to pay 70 in employers NI

I run my payroll and enter the following journal

CR 2220 Wages £800
CR 2210 TAX/NI £270
DR 7000 Employment cost £1070

At this moment in time, my P&L shows that I incurred a cost of £1070 for employing Bill for the month (7000)
The Balance sheet shows I owe £800 to Bill (2220) for his wages and £270 to the taxman for Tax and NI (2210)

I pay Bill his wages and enter a Bank payment from 1200 (default bank account) to 2220 for £800

At this point the balance sheet shows that I am all square with Bob and owe nothing to him (2220 has a balance of 0)

I pay the tax man the £270 the same way at a later point and that account now shows we are all square (2210 has a balance of 0)

=========== When you understand the above move on to the next bit ===================

Bill gets caught short and against my better judgement I give him a £200 sub against next months wages

I enter a bank payment from 1200 (default bank account) to 2220 for £200

The 2220 account now shows that Bill owes me £200 (it is a debit instead of a credit) and next month when his wages go in, I will pay him only £600 even though he will have earned £800 and all will be square again.

=========== When you understand the above move on to the next bit ===================
In real life, things can get a lot more complicated.

Pensions:

Bill pays £100 into a pension so I need to use a pension control account to make sure I pay the money over to the pension fund each month.

CR 2220 Wages £700
CR 2210 TAX/NI £270
CR 2230 Pension £100
DR 7000 Employment cost £1070


I might want to encourage Bill to take a pension by paying £50 into it for him as well.


CR 2220 Wages £700
CR 2210 TAX/NI £270
CR 2230 Pension £150
DR 7000 Employment cost £1120


Bob joins on the same deal as Bill but he works in a separate area so I what his employment costs in a different nominal code in the P&L

CR 2220 Wages £1400
CR 2210 TAX/NI £540
CR 2230 Pension £300
DR 7000 Employment cost £1120
DR 7001 Employment cost £1120

You can see that with a payroll of several hundred people in half a dozen departments, with student loans, pensions, staff loans things can get pretty complex, but as long as you can remember what each account represents you should not get too lost. The toughest part is creating the journal in the first place from the wages records and splitting all the different costs into their own little areas.

How to get Credits and Debits the right way round?
Creditors meetings are where the creditors of a company try and get their money out of them, so creditors are owed money by the company. So credit transactions in the Balance sheet increase the amount we owe.
In the P&L you can look and see that expenses accounts are Debits and Sales accounts are Credits
There are probably other ways of remembering, whatever happens, everyone has posted a journal back-to-front at some point, we are all human so don't worry about it too much, if you understand what the balances represent you will spot your error straight away and fix it.

[martinburkitt]

Brilliant post - very well explained. I've even bookmarked for future reference. Cheers!