Last year to due needing to pay PAYE tax and NIC refunds, we ended up being in credit with HMRC. For several months there has been no need to pay HMRC each month for NIC/tax liabilities as these are covered by the credit balance.
However, now the balance sheet is showing a balance under 2210 PAYE as a current asset, and also a slightly lower amount as a liability under 2211 National Insurance. I guess this would make sense as there is still a credit remaining, however it would be good to reduce the figure in account 2210 to more accurately reflect the actual credit, and to remove the liability altogether.
How can I reflect that these national insurance liabilities from the past several months were in effect ‘paid’ by being netted off the credit owed to the business by HMRC?
You should tag all your liabilities for things that are paid through Pay-As-You-Earn to the PAYE nominal - not just income tax but also class 1 employee and employer NI, deductions for student loans etc. I’d only use the “national insurance” nominal for NI liabilities that are not handled through PAYE, such as class 1A on benefits and expenses.
As for how to fix it now, the simplest thing to do is a one off journal from 2211 to 2210 to clear the 2211 balance. Going forward just use 2210 in your payroll journals in the first place and the “netting off” will happen automatically.
Glad it’s sorted - it is confusing having a separate nominal called “national insurance” when 99% of most people’s NI goes through PAYE. It makes people equate “PAYE” with “income tax” when really the term is much broader.