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• # 119327
• Wed 09 Dec 2020 03:39 PM

Hi there, 

Would anyone be able to help me with the postings for this situation please? 

A settlement payment was agreed for an employee who has now left the company (Aug). The employee did not draw down her salary whilst working for the company so the settlement is to pay the total salary arrears. 

The settlement is £31k to be paid £1k per month from Dec 20 onwards until the balance is paid off.  This will go through the payroll with all the associated PAYE deductions. 

How should I recognise this liability in the accounts?  DR prepayments, CR loan for the amounts due in this financial year then reverse the prepayment £1k per month back into the P&L?  for the remainder not due in this financial year should I DR prepayments and CR long-term loan for the balance outside of this financial year then follow the same procedure? or should I use net wages account? 

I'm sure it's simple but I'm going round in circles...  Any help appreciated. 

Best, Abbie 

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• # 119328
• Wed 09 Dec 2020 05:15 PM

Hi Abbie, Wow, what a situation!! IMHO the 31K technically belongs to the accounting period in which the liability occurred so if you were going to move it to a loan, then perhaps you could accrue it to wages and balance that transaction to a loan? Are you suggesting that it would then be a matter of paying the loan at 1k per month ensuring Employers NI etc is also paid.

This would not affect the current period P&L as it was dealt with in the previous year. However, would the revenue see this as something that should already have been taxed and Employers NI. NI and Tax already been paid on effectively giving an immediate liability to tax and NI?

It may be a dilemna an accountant / legal professional ought to take a look at?

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• # 119329
• Wed 09 Dec 2020 05:28 PM

banjo_mark said:

“

Hi Abbie, Wow, what a situation!! IMHO the 31K technically belongs to the accounting period in which the liability occurred so if you were going to move it to a loan, then perhaps you could accrue it to wages and balance that transaction to a loan? Are you suggesting that it would then be a matter of paying the loan at 1k per month ensuring Employers NI etc is also paid.

This would not affect the current period P&L as it was dealt with in the previous year. However, would the revenue see this as something that should already have been taxed and Employers NI. NI and Tax already been paid on effectively giving an immediate liability to tax and NI?

It may be a dilemna an accountant / legal professional ought to take a look at?

”

Hi Mark, I know, tell me about it. A long list of items like this to resolve...! Thank you for coming back to me. 

My feeling is just that, that the Revenue would want the whole amount put through at the time of departure otherwise paying £1k per month through payroll would surely mean the employee would be counted as still being employed by the company...

Yes, next call the accountant! Thank you once again. Best, Abbie 

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