New Employee TAX Rebate Accounting - HMRC Rebate not coming through


I am a new employer and on the first payroll one of the employees had a large tax rebate due. So I paid it and allocated the full payment against the Directors Salaries (as it was a Director) and made the payment to them.

Having talked to HMRC they said a refund would be made to me quickly but it appears that it will not be.

My issue is that the tax rebate is showing as a payment in the P&L and therefore showing me with a P&L loss which is not really the case. Since then I have completed 1 more payroll and obviously owe HMRC nothing but that negative amount on my HMRC PAYE account is still very high and probably will not be paid off in 6 months.

Is there a way that I can show in the P&L that there is this rebate due (possibly before end of March) and each month reduce the balance on that rebate by the amount I would have paid HMRC should there not have been a negative balance?

Thanks in advance,


But the payment wasn’t all salary, it was part salary and part tax refund.

If you’re running a proper payroll then you’re probably better off switching on the “post net wages to balance sheet only” option, then when you tag the bank transaction as a salary payment it’ll just go onto your balance sheet (under “net wages”) rather than P&L. Then enter a journal based on the numbers you get out of your payroll software, which will probably look something like

  1. Debit Directors Salaries for the actual salary amount
  2. Debit PAYE for the amount of the tax refund
  3. Credit net wages for the total you paid (which should be 1 + 2)

When you do get the refund from HMRC that would balance out number 2 and leave PAYE at zero.

Thanks Ian.

That worked perfectly and also gave me the starting point to sort out a number of the other things like Pension payments that have not been taken as yet.