Each payroll run is posted with one journal: debit the expense accounts with gross pay, employer’s National Insurance and employer pension contributions, and credit the liabilities for net pay, PAYE and National Insurance owed to HMRC, pension contributions owed to the scheme and any other deductions. Each liability is then cleared by the payment that settles it, so after every month the net wages account is nil and the HMRC and pension accounts hold only amounts not yet due.

Which accounts does a payroll journal need?

Payroll software calculates pay and deductions, but it does not decide how they are recorded in the books. A clean set of nominal accounts makes the reconciliation straightforward.

Account Type What it holds
Gross wages and salaries Expense Total gross pay, including statutory pay, bonuses and overtime
Employer’s National Insurance Expense Secondary Class 1 contributions
Employer pension contributions Expense The employer’s share only
Net wages control Liability Take home pay due to staff until it is paid
PAYE and NIC control Liability Income tax, employee and employer NIC, student loan and postgraduate loan deductions
Pension control Liability Employee and employer contributions due to the scheme
Other deductions Liability Attachment of earnings orders, payroll giving, staff loans

ACCA’s Recording Financial Transactions syllabus treats this as core bookkeeping: calculating gross pay, accounting for payroll costs and deductions, and the employer’s responsibilities for taxes and other deductions.

How do you post a monthly payroll?

Illustration only. The figures below are chosen to keep the arithmetic simple and are not calculated at 2026 to 2027 rates. The payroll summary for March shows gross pay £10,000, PAYE income tax £1,400, employee NIC £500, student loan deductions £100, employee pension £500 and net pay £7,500. Employer’s NIC is £1,250 and the employer pension contribution is £300.

Account Debit Credit
Gross wages £10,000
Employer’s NIC £1,250
Employer pension £300
Net wages control £7,500
PAYE and NIC control (1,400 + 500 + 100 + 1,250) £3,250
Pension control (500 + 300) £800
Totals £11,550 £11,550

When the bank pays staff, debit net wages control £7,500 and credit bank. When HMRC is paid, debit PAYE and NIC control £3,250. When the pension provider collects, debit pension control £800. If all three payments have been made, all three control accounts are back to nil.

The employer’s NIC figure in a real payroll comes from the 2026 to 2027 rates: HMRC’s rates and thresholds for employers show category A secondary contributions at 15% above a secondary threshold of £5,000 a year.

When do PAYE and National Insurance reach HMRC?

HMRC’s running payroll guidance sets out the monthly cycle. A Full Payment Submission is sent on or before payday. Employers can view what they owe from the FPS online from the 10th. An Employer Payment Summary is sent by the 19th to claim any reduction, and the bill is paid by the 22nd of the next tax month, or the 19th if paying by cheque through the post. Employers paying quarterly pay by the 22nd after the quarter ends, for example 22 July for the 6 April to 5 July quarter. See FPS and EPS.

HMRC lists what the PAYE bill may include: employee income tax, Class 1 and 1B National Insurance, Class 1A on termination awards and sporting testimonials, student loan repayments, CIS deductions and the Apprenticeship Levy for employers with an annual pay bill above £3 million. If those items run through payroll, they belong in the same PAYE and NIC control account, so the account mirrors HMRC’s own calculation. See student loan deductions.

How do Employment Allowance and statutory pay recovery affect the journal?

Employment Allowance reduces employer’s Class 1 NIC each time payroll is run until the allowance is used up or the tax year ends. HMRC’s guidance gives the maximum as £10,500 each tax year, claimed by putting Yes in the Employment Allowance indicator on an EPS. In the books, debit the PAYE and NIC control account and credit the employer’s NIC expense, so the expense shows the true cost. See Employment Allowance.

Statutory Maternity, Paternity, Adoption, Shared Parental, Parental Bereavement and Neonatal Care Pay can be partly recovered. For 2026 to 2027 the recovery rate is 92%, or 109% if total Class 1 NIC for the previous tax year was £45,000 or lower. Statutory Sick Pay cannot be recovered. The statutory pay itself is part of gross wages. The recovery is a debit to the PAYE and NIC control account and a credit to the wages expense, reported to HMRC through the EPS.

How are pension contributions recorded and paid?

The Pensions Regulator says that contributions deducted from a worker’s pay must be paid to the scheme by the 22nd day of the next month, or the 19th if paying by cheque. For automatic enrolment the minimum total is 8% of qualifying earnings, of which the employer pays at least 3%. For 2026/27 the qualifying earnings band runs from £6,240 to £50,270 a year.

The pension control account should equal the provider’s contribution schedule for the month. If a worker opts out and the provider refunds contributions, the refund goes back through payroll, and the control account shows whether it has been dealt with. Under salary sacrifice the sacrificed amount is an employer contribution, so gross wages falls and employer pension rises.

How do you reconcile the payroll control accounts?

  1. Net wages. After payday the balance should be nil. A balance usually means a payment was posted to the wrong account, a cheque has not cleared, or a manual payment was made outside payroll.
  2. PAYE and NIC. At each month end the balance should equal the current month’s liability, which is not due until the 22nd. Agree it to the HMRC online account, which should show the FPS charge less EPS reductions for each tax month and update within 6 working days of a payment.
  3. Pension. Agree to the provider’s schedule and check the payment date against the 22nd deadline.
  4. Gross pay. Agree the nominal ledger wages total to the payroll’s year to date report, and at the tax year end to the final FPS.

Keep the reconciliation with the payroll reports. HMRC requires payroll records to be kept for 3 years from the end of the tax year they relate to, and says it may charge a penalty of up to £3,000 if full records are not kept.

What happens at the financial year end?

If the accounting year end falls between the work being done and payday, the wages earned should be accrued. The same applies to bonuses earned in the year and to holiday pay owed at the balance sheet date (see holiday pay accrual). The PAYE and NIC control account at the year end should hold the last month’s liability, which appears in the balance sheet as other taxation and social security. Class 1A NIC on benefits in kind is reported separately after the tax year and should be accrued in the accounts for the period in which the benefits were provided.

What mistakes come up most often?

  • Posting net pay as the wages expense, so tax, NIC and pension never appear as liabilities.
  • Posting the HMRC payment as an expense on top of the journal, doubling the cost.
  • Late or missed EPS claims, so the liability in the books is lower than HMRC’s figure. Late payment can lead to penalties (see PAYE late filing and payment penalties).
  • Leaving old balances unexplained. Errors from earlier tax years need correcting through payroll, not by journal alone.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.