Create a manual payroll journal

This explains how to record information about your payroll in your accounts, such as details of your wages, tax and insurance. Here we'll tell you

  • How to record salary payments made to your employees.

  • How to record payments made to HMRC for tax and national insurance

If you subscribe to both Sage Business Cloud Accounting and Payroll, save time and send salary details directly to Accounting when you complete your pay run. See Payroll and Accounting integration.

Salary journals are where you record all the information used to pay your employees. This includes the wage payments actually made to your employees, the amount you have paid to HMRC for tax etc, as well as keeping track of employee costs.

We recommend that you complete your salary journals at the end of each pay period.

To make sure your accounts are fully up to date, we recommend that you create the following:

  • A salary journal showing the amounts due for your wages, PAYE and and national insurance. This is so you can accurately track your employee costs,

  • A bank payment showing the amount actually paid to your employees, so your bank balance is up to date and you can reconcile this with your bank statement.

  • A bank payment showing the amount paid to HMRC.

Before you start

For whatever payroll system you use, you'll need the following information for each pay period.

  • Total PAYE (income tax)
  • Total gross pay
  • Total net pay
  • Student loans
  • Deductions and attachments
  • Employee pension contributions
  • Employer’s NI contributions
  • Employees NI contributions
  • Employer pension contributions, if applicable
  • Any statutory payments made
  • Any statutory payments reclaimed. If you reclaim statutory payments, you can get this value from the monthly P32 report.

Create the salary journal

When you record details of your payroll, your net wages and the money you owe HMRC in tax and insurance is recorded as a liability on your balance sheet to show that this is money owing by your business. These are all entered as a Credit in your payroll journal

The other half of the payroll journal records the costs to your business, and is reported on profit and loss. These are all entered as a Debit value.

Your liability is then cleared when you record bank payment to pay your employees and HMRC.

  1. From Adjustments , choose Journals, then New Journal.
  2. Enter the pay date for the relevant pay period.
  3. Enter a reference and if required a description.
  4. Enter the relevant amounts as debits and credit as shown in the following table.
  5. Make the Include on VAT return checkbox is cleared, as this is not reported on the VAT return.

The following table shows the details of a salary journal:

Code t Description Debit Credit
2210

PAYE

The total tax deducted.

If you’re due a tax refund, this recorded as a debit and is included in the credit for net wages.

  Credit

2211

Other taxes to pay HMRC

The total of employee and employer NI contributions.

If you’re due an NI refund, the value posts as a debit and is included in the credit for net wages.

  Credit

2214

Student Loan The total value of student loan deductions made.   Credit

2215

Attachments The total value of attachments deducted from employees’ net pay.   Credit
4900 Other Income For each pay period where a calculation results in a deduction, you may take up to £1.00 from your employee’s earnings towards your administrative costs.   Credit

2220

Net Wages

The total value of the employees take home pay.

 

  Credit

2230

Pension

The total employee and employer pension contributions.

If you use more than one pension scheme, separate entries are shown for each scheme.

  Credit
7000

Employee Costs

Total gross wages for all employees, not including statutory payments. Debit  

7006

Employers NI Contribution The total employer NI contributions. Debit  

7007

Employer Pensions

Total employer pension contributions.

Debit  

7009

Other Deductions Total of any remaining employee deductions, excluding attachments and student loans.   Credit

7010

Statutory Sick Pay Total SSP paid. Debit  

7011

Statutory Maternity Pay Total Statutory Maternity Pay paid Debit  

7012

Statutory Paternity Pay Total SPP paid Debit  

7013

Statutory Adoption Pay Total Statutory Adoption Pay paid. Debit  

Reclaim statutory payments

If you can reclaim any statutory payments such as SMP, SSP or SAP, include the following lines:

code Description Debit Credit

7011

Statutory Maternity Pay The total Statutory Maternity Pay reclaimed   Credit

7012

Statutory Paternity Pay The total Statutory Paternity Pay reclaimed   Credit

7013

Statutory Adoption Pay The total Statutory Adoption Pay reclaimed   Credit

2211

Other taxes to pay HMRC

The total of all statutory payments reclaimed this period. Debit

Reclaim Employment Allowance

If you claim employment allowance, include the following lines:

code Description Debit Credit

2211

Other taxes to pay HMRC

The amount of employment allowance you want to claim. Debit  

7006

Employers NI Contribution The amount of employment allowance you want to claim.   Credit

Record payments of wages to your employees

You can record this as a journal or as a bank payment.

Record the bank payment for your wages

Once you've paid your employees, you'll need to make sure your record the corresponding bank payment. This will make sure that you correctly show your wages as being paid in your reports.

Whether you import transactions from a bank feed or create the bank payment manually, make sure you choose the Net Wages ledger account.

To make it easier for you to match with your bank statement, consider creating a separate line for each employee.

  1. From Banking, open the required bank account.
  2. Choose New Entry, then click Purchase / Payment.
  3. Choose Other Payment then enter the date for the payment. this should be the same as your pay date.
  4. Enter the total amount paid for the pay period.
  5. Create a single line for the total or create separate lines for each employee with the following details:
    1. For Ledger Account list, choose 2220 - Net Wages.
    2. Choose No VAT for the VAT rate.
    3. Enter the amount the employee was paid.

If you're entering separate lines for individual employees, check that the total matches your net wages for the pay period.

Record this as a journal

To do this follow the steps in the previous section and add the following information:

code Description Debit Credit
Code for your bank account Bank account Total net wages.   Credit

2220

  Net Wages Debit

Record payments to HMRC

When you make your monthly or quarterly payment to HMRC, you need to show this in your accounts so you can reconcile the payment in your bank and so the amount you owe is reduced and shown accurately on your reports.

Whether you create a payment manually or import via a bank feed or your statement, you'll need to record the payment against various ledger accounts, depending on the breakdown of your liability to HMRC.

  1. From Banking, open the required bank account.
  2. Choose New Entry, then click Purchase / Payment.
  3. Choose Other Payment then enter the date for the payment.
  4. Enter the amount paid to HMRC.
  5. Add separate lines for tax, national insurance and any student loan payments, if applicable.

    VAT rate
    2210 - PAYE to pay HMRC No VAT

    2211 - Other taxes to pay HMRC

    No VAT
    Student Loan No VAT

Record this as a journal

To do this you need to create the following journal:

code Debit Credit
Code used for the bank account Bank account   Credit
2210 PAYE to pay to HMRC Debit  

2211

NIC to pay to HMRC Debit  

2214

Student Loan Debit