I’ve been using Manager for a while now and this forum has been brilliant for solving any queries I had. But I’ve eventually come across a problem which I can’t find the answer to!
The short question is: how do I account for the small employers’ relief on statutory maternity pay (SMP) in Manager?
The same question in more detail and with a bit more context is:
In the UK, if an employer meets certain criteria and one of its employees takes maternity leave, it will be entitled to relief on PAYE contributions equivalent to 103% of the amount of SMP paid.
So, for example (using fictious figures to make the maths easy), a business has two employees. Employee 1 earns £2,000 per month and is liable to pay £400 in PAYE. Employee 2 normally earns the same salary, but takes maternity leave for which she is paid SMP of £1,000 per month. Employee 1 does not have to pay PAYE on her SMP.
On each pay day, the business transfers cash of £1,600 to Employee 1 and £1,000 to Employee 2.
HMRC credits the business’s PAYE account with £1,030 in respect of the small employer’s relief to which it is entitled because of Employee 2’s SMP; and debits it by £400 due to the PAYE owed by Employee 1. As such, every month the business’ PAYE account receives a net credit of £630. Because of this, no cash is paid from the business to HMRC in respect of the PAYE.
After a 10-month period of maternity leave, Employee 2 returns to work full time and becomes liable to pay £400 per month in PAYE. The business’ PAYE account is in credit by £6,300 on the day Employee 2 returns to work (i.e. because of 10 months of a net credit of £630 being applied to that account).
Because of the credit on the PAYE account, no payments are made by the business to HMRC in respect of PAYE until the balance falls below £0 (i.e. until the eighth month after Employee 2 returns to work).
I have been including a PAYE element in the payslip for Employee 1 in the usual way. This increased the amount showing as being owed in the ‘Payroll Liabilities’ liability account by £400 every month when Employee 2 was receiving SMP; and by £800 per month after Employee 2 returned to work. But because the PAYE account is still in credit no cash is being paid from the bank account to HMRC, so that liability account is increasing every month.
I suspect the way to deal with this is through a journal entry, but I cannot work out how this would be done. Any help would be very much appreciated!
Finally, apologies if any of the above terminology is incorrect of needs clarification. I am very much an amateur!