We are very small (only two employees) so we don’t use specialist payroll software. I use the HMRC basic tools for the calculations/submission to HMRC.
Following the answer I received above, I changed how I was recording the wages on QF to just tagging from the bank entry as “Salary, Wages…”. The system then makes the appropriate journal entries.
This is fine, until I come to the end of our financial year/end of the tax year as I now have two issues:
Because wages are actually paid in arrears, the liability for the wages due up to 31 March (but paid on 1 April) needs to be recorded on that date (as a liability) to ensure that it is in our 2018-2019 financial year.
Until it is paid later this month, we will have a liability for PAYE & employees NI which should also be shown in our 2018-2019 financial year, but won’t, as I am now not showing PAYE & employees NI. (there is no employer’s NI due to the annual allowance).
You need to first go into your account settings and make sure “post net wages to balance sheet only” is turned “on”. This turns off the automatic journalling of salary payments and leaves you free to do the journal yourself with full control.
What you’ll need to do is create a journal on 31st March from the numbers you get out of the PAYE tools:
Debit “gross wages” for the total gross pay before deductions
Credit “PAYE” for what you owe to HMRC (income tax and employees’ NI)
Credit “Net wages” for what you owe to the employees (the remaining net)
Now on 1st April you can tag the payment(s) out of your bank account as “salary” and it will cancel out the net wages liability on your balance sheet, and when you come to pay HMRC you tag that as a “tax payment” for “PAYE liability” to cancel that one out too.
A note on terminology: you talk about “PAYE & NI”, but what you actually mean is “income tax & NI” - pay-as-you-earn is the scheme by which HMRC collects a variety of different payments, including income tax for the current year, underpaid tax from previous years, NI, student loan repayments, etc. All of these different amounts are part of your PAYE liability and they all go under the same code on your balance sheet.