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When a small charity claims the Employment Allowance (£10,500 reduction in the employer's NIC bill per year) and is also reclaiming Statutory Maternity Pay, how should these be accounted for in the payroll journal?
This is how I have done it so far. On the debit side I post the gross wages, the full Employer's National Insurance cost and the Employer's pension cost. On the credit side I post the net pay, the pension cost, and the actual amount of NI paid over to HMRC, the employment allowance and SMP. These usually balance out.
The debit side items show in the P&L and the credit side items sit on the balance sheet.
What I am now questioning is the treatment of the Employment Allowance and the SMP reclaim. In practice, both of these reduce what the employer actually pays to HMRC. So the employer ends up paying less Employer's NI once the SMP reclaim and the Employment Allowance are applied.
My thinking is that the Employment Allowance and the SMP reclaim could be coded against the same NI cost code, so that the P&L reflects the lower net employer's NI cost that the charity really bears.
Does this make sense, or is there a cleaner way to treat them? I would really like to hear from an accountant with hands on experience of SMP and the Employment Allowance.
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