National Insurance rebate?

Hi. New Quickfile user here. I have set up a limited company for contract work, after being made redundant a few months ago. New to book-keeping and after some advice on how to reflect a negative NI figure!

I installed Basic PAYE Tools, fed it my P45 details, then just today I put through a wage.

PAYE tools added a rebate in NI contributions, presumably because I was on a decent salary from April to September but haven’t been paid since (been using redundancy money).

I’ve simplified the amounts for clarity and privacy, but am I right in thinking that in Quickfile, my journal entry should be something like:
1200/Current Account, “Net Salary”, 1450 credit
1101/Sundry Debtors, “HMRC NI refund”, 450 debit
7001/Directors Salary, “January pay”, 1000 debit

…so credit and debit balance… then transfer 1450 into my personal account.

Is that right? That I, personally, am paid the NI refund by my company?


Well that would depend on whether it’s an employee ni refund or an employer ni refund.

It’s on my payslip, added as a negative value on the “deductions” side (so it adds to the total rather than subtracts).

I’m new to this, but I can’t see a way it could be employer NI based on how it was presented. Must be employee.

Yes if its on the payslip it’s employee nic.

If you didn’t first record the salary with the expected nic payment being due, then for ease id just tag the 1450 payment out as directors salary

The issue with using sundry debtors you’ve not first created an entry for it to be reversed when you pay yourself back. So it will most likely leave a balance on the balance sheet if you use that.

It sounds as though it is working out your NI as a director - including what you were paid prior to forming the company. I’m not sure this is correct. NI is usually calculated on a month-by-month basis, rather than cumulatively like PAYE. That means you wouldn’t usually get a refund unless there had been an error.
Directors can have their NI calculated on a cumulative basis, so they don’t pay any NI until they have passed the lower threshold. Were you a director in your previous job?

I’m a bleeding idiot :smiley:

It’s an income tax rebate, not an NI rebate. After reading cbstephensaca’s post, I wondered if I’d maybe typed the wrong thing into Basic PAYE Tools when telling it about myself, and when I went to check - definitely income tax rebate. Even said so on the payslip it printed yesterday, and I misread it with my first day nerves.

In which case I’ll go with
1200/Current Account, “Net Salary”, 1450 credit
1101/Sundry Debtors, “HMRC PAYE refund”, 450 debit
7001/Directors Salary, “January pay”, 1000 debit

…and I take it I pay myself that rebate and my company will pay less tax instead. Is THAT correct? :slight_smile:

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I think there’s some confusion here.

The tax rebate relates to an old employment prior to you starting a Ltd company.

The tax rebate is not a sundry debtor nor any debtor of the company.

I’m sure with a £1000 p/m salary there’d also be other adjustments like employers national insurance payments.

If you could please list the exact figures it might be easier.

Gross pay
Employees ni
Tax refund
Net pay
Employers ni

So when you entered your P45 details it calculated that you (the individual) have overpaid income tax for the year so far, so you’re due a refund which is implemented by the company paying you the extra in your net pay, which it can then offset against its future PAYE bills. It isn’t that the “company will pay less [corporation] tax” - it’s that you have paid too much personal tax, but the refund from HMRC to you is administered through your company’s payroll.

  • 1200 (current account) credit 1450
  • 7001 (director’s salary) debit 1000
  • 2210 (PAYE) debit 450

The tax refund that the company has paid to you will sit as an asset on the company balance sheet (2210) until it is cancelled out by future pay-as-you-earn liabilities such as income tax, NI or student loans, arising from other payroll runs. Or you can ask HMRC to refund it to the company, but they won’t refund automatically without being asked.


Thanks Ian, that’s a helpful breakdown.

Paul, I got the “sundry debtor” category from the book I’m using to walk myself through this process, “Accountancy for UK Contractors” by James Richardson. It’s a short book and he doesn’t say why to do it, just to do it that way and it’ll suffice!

As I need to buy food and pay bills, I’m going to pay myself exactly what the government’s own software tells me to this month, and if there are any goofs caused by my setup being wrong I will learn how to add adjustments to payroll next month.

Yes but your reading the book from the standpoint that your company had overpaid tax in the first place. It hadn’t. You left an employment and then started your own business where you employed yourself.

That was the point I was making. The book assumes its the same employment.

But as you say, you can fix goofs at a later date. If it were me tho. I’d probably follow ians advice.

It is, in effect, a sundry debtor, just a very specific one. Anything owed to or from HMRC for payroll taxes should always be posted to the specific balance sheet codes relating to whichever payroll tax they relate to. (Although it’s a little bit pointless having separate codes for PAYE, NI, etc. as effectively they are all lumped together when you pay them and are shown as a total liability (usually!) on the balance sheet.

They are collected by the company on your behalf, so the company doesn’t pay any less tax, as it is not their tax to begin with. They are just deducting it from their employees and passing it on to HMRC. The process also works in reverse for tax rebates.

Make sure you account for it when you make any future payments to HMRC, and don’t pay anything until the balance is clear. They won’t pay it back to the company and won’t inform you of a credit balance for quite a considerable length of time so be sure to take it into account when calculating how much you owe them each month/quarter!

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I use the single PAYE code for all liabilities that are due through pay-as-you-earn, and the separate NI code only for non-PAYE national insurance liabilities like class 1A.

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