Hi there, First time here on the support forum - treat me gently. I have a new business and am approaching my first year end on 30 April 2022. I am not new to business finance and accounting.
I have an issue whereby my gross profit is being incorrectly calculated. When I look at the segmented profit and loss report, I can see where I think the problem is occurring.
In my month 2 my gross profit is negative (52,440) and then in month 3 goes to positive 18,200 suggesting that I have received revenue after expenses of approx 70,000 - this was not the case. revenue in month 3 after expenses was 25,000.
Any ideas on where to look for what appears to be a missing journal or double/trebble accounting for revenue received in either month 2 or 3
Does the net profit before tax need to have tax (VAT, PAYE/NIC) removed from that number before you can see a true profit number from which to assess any corporation tax on profit?
How are you entering your payroll records into QuickFile?
VAT doesn’t figure in the P&L at all - when you create a (sale or purchase) invoice only the net value goes into the P&L nominal codes, the VAT is handled entirely on the balance sheet. (Assuming of course that you are VAT registered - if you aren’t then your sales don’t attract VAT and your purchases go into your books as the total VAT-inclusive amount you were charged by the supplier)
For payroll, the cost to your business is the gross wages (before deduction of income tax, employee NI, etc.) plus the employer NI contributions and any employer pension contributions. The fact that you are deducting some of the gross wages and paying them to HMRC instead of to the employee is irrelevant, that’s the employee’s personal tax and NI bill, nothing to do with your business P&L.
I have been tagging the bank transaction for payroll (Net) to employees and then tagging the HMRC payments (NI/ENI/PAYE) when they come in via the bank transactions.
So normally what you would do if you’re running a proper payroll would be (a) configure “post net wages to balance sheet only” to “ON” in your account settings, then (b) create proper journals for each payroll.
When you run a payroll you’ll have figures from your payroll software for the gross pay, employee NI and income tax deducted, employee NI paid, etc. So on the pay date you create a journal in QuickFile
debit 7000 (gross wages) for the gross total pay before deductions
debit employer’s NI for the appropriate amount
credit net wages (one of the 2xxx codes, can’t remember which) for the amount that actually goes to the employees after deductions
credit “PAYE” (another 2xxx code) for the total that you owe to HMRC for this payroll, i.e. employer NI paid by the business, plus employee NI and income tax deducted from the employee
and possibly a few others if you have a pension scheme
debit the 7xxx pensions nominal for the employer contributions
credit the 2xxx “pension fund” code for the total contributions (employer plus employee)
This should all balance up nicely. Now when you actually pay the employees that would tag straight to the net wages balance sheet code to cancel that out, and when you settle your PAYE liability to HMRC then that goes to the PAYE balance sheet code in the same way.
With the setting “off”, when you tag a payment as wages QuickFile actually creates a journal in the background which ultimately puts the net wages onto your P&L (under “net staff salaries paid”) instead of your balance sheet. This is suitable in the simple case where you don’t have any deductions to make, e.g. a small ltd co sole director paying a minimal salary between the LEL and threshold for NI (so it counts towards your state pension but doesn’t actually deduct any contributions), but if you’re doing a proper payroll with deductions then it’s better to handle the journal yourself and just put the net wages on the balance sheet.