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How to set up opening balances for PAYE

Hello
I have a number of unused credits from The HMRC PAYE that need to be carried into the year 2020-2021. These are for Statutory Maternity pay, Employers Allowance, NI compensation for SMP

How should i set this up in Quickfile?

What were you using before for your book keeping? This kind of thing should be taken care of if you have a closing trial balance from your previous software.

To be honest I was using a well known software brand but the credits from a previous year was never accounted for and that’s why I am looking to set up correctly with Quickfile. The unallocated credits that I have were taken from my HMRC gateway records.

When you say you have credits for employers allowance, can you please clarify in what way is it a credit?

If you’re referring to the actual allowance which is used against reducing employers ni payments you wouldnt record this in quickfile. Only when you actually make employers ni payments would you record it.

Can I also ask, is it likely you will use the smp ni compensation in this current tax year?

If the answer is yes then you could simply record the paye details using a journal in the month its used and instead of including the full employers ni contribution reduce it by the amount your in credit by. After all, when you make a payment it will be less the credit anyway and so everything will balance.

Theres no need to record any of these as an opening balance.

If you will not use it due to employers allowance covering all employers ni payments then there’s nothing to record in quickfile. Remember when you create a payroll journal it is based on net pay, tax and ni paid. When you record a payment to staff or hmrc, it will be the same total.

Disclaimer : you still need to report an eps in rti showing the credit used against ni.

Hello Paul
I have credits on all three, SMP Payments, SMP Compensation and Employment allowance. The reason why there are credits is of course the amount that I am paying out in SMP is greater that the Tax & NIC collected from employees.

It seems alien to me not to record this somewhere for how will the accountants know how much is owed to the business.

About the only way I can think of adding the smp compensation at the opening balance date would be to create a journal showing the smp paid, the amount owed to hmrc at that date and the balance under a smp recovered nominal.

The journal date I guess would need to be prior to the start of the accounting period or it will mess things up.

Its quite a technical question so you may be wise to consult a paid professional in this instance.

I still believe employers allowance shouldn’t be recorded though, unless I’m missing something if you claimed the 4k EA this year but never had any ni payments to offset, hmrc would not pay you it at year end, it would go unused in that year. So I can’t see how it’s an asset of the business.

Hello Paul
I have now successfully set up a journal entry that shows the Gross Wages, Employers NIC and Employers pension contributions in the P&L report and the Employee Tax, NIC, Pensions, net pay as liability accounts in the Balance sheet. When I tag the payments made the liability accounts adjust accordingly so I am very happy with the way the set up is working but I still cannot successfully create a negative balance for the P.A.Y.E account to reflect the amount of money owed to me from the HMRC from a previous year. I am playing around with using a HMRC control account but any guidance would be appreciated.

Hi James. Unfortunately I can’t see how I can help you in this instance, because I am of the opinion that it shouldn’t be recorded in the accounts as its not a company asset.

I’ll try to explain.

The credit you have with hmrc will only ever be used to reduce ni payments.

If you used the credit to reduce the ni liability, then the only record in quickfile you would have is the actual ni paid to hmrc. The only payment out would be the actual ni paid over.

If you record the credit with hmrc and record the actual ni liability prior to any adjustments, then you’d effectively increase your paye costs in the p and l by the amount of credit used against the ni payment. Which in my opinion isn’t right as it isn’t a real cost to the business.

If you are adimant that you want to record it then it may be wise to consult a paid professional first for some advice.

Hello Paul
So the only way to keep the P.A.Y.E and NIC liabilities accounts not showing a due balance is not to enter any amounts for the pay periods, in affect show a zero P.A.Y.E or NIC contributions in any pay period until such time that all the credits have been used?

Well not quite. The due balance would be just that. Whatever nic liability is due. If the EA clears any nic liability then the balance due would be zero.

If however the EA doesn’t clear all nic liability then the balance due would be what’s remaining to be paid.

Thus when the payments go out of your account, they match the balance in your paye liability nominal.

Your payroll summary should look something like
Net pay
Tax and ni due
Gross pay
Employers ni
Less EA claimed

If employers ni less EA claimed equals zero there’s no liability.

As I said previously. EA isn’t an asset of the business. So you can’t record it as such. It’s an allowance. Hmrc credit the ni, not the business.
And any unused EA gets cleared in the new tax year. It doesn’t roll over.

If the credit with hmrc is not EA and its as a result of overpaying in a previous tax year, that’s another issue, and of course you’d record that, but I’m talking specifically about EA.

Hello Paul
I really appreciate your effort in resolving my issues but after reading your last reply i think we have been talking at cross purposes. This is not about the employers allowance it is to do with the amount of Statutory Maternity pay paid by the business with the amount of SMP being greater than the PAYE Tax and NIC liabilities which resulted in the HMRC owing money to the business. Its nothing to do with allowances.

Ah OK. My apologies.

So let’s take a few steps back. How was it originally processed in quickfile?

Maybe this discussion may help?

Basically you’d have recorded the net pay Inc smp, tax and ni, employers ni, and the gross pay Inc smp.
The p32 in your payroll software should show the amount of recoverable smp, which I guess you’d post to an smp compensation account.

Then you’d journal it out again and in to paye nominal to credit against future liability.

If I’m honest. I’ve never had to deal with this scenario so I’m thinking off the top of my head with this one.

Thanks Paul
At least we both understand what the problems are now and I will delete all the entries and start again. I wont move on until I have sorted this out. I hope you dont mind me contacting you again with an update on how I am progressing. What I like about Quickfile is you can see what effect the changes make and I know if I stick it out I shall be learning and improving my book keeping practices.

Sure no problem. Feel free.

1 Like

Hi James,
How were you recording the payroll journals in your previous software? If the journals were posted correctly, you should have ended up with a balance owed to you from HMRC.
If not, then you need to work out where the error was so that you can post the opening credit and work out where the debit should go.
It would probably help to set up a SMP account, similar to the PAYE/NIC accounts so in the same range. Then you can keep track of the balance owed.
Claire