Record childcare vouchers in FreeAgent
This article shows you how to record childcare vouchers in FreeAgent.
Please note:
- You can either record the deductions within payroll by reducing the employee's gross pay, or using salary sacrifice. If you're unsure which option to use, please ask your accountant.
- You’ll need level 7 user access or above to your FreeAgent account in order to access the payroll functionality.
- FreeAgent's payroll functionality won't be available if you have an unincorporated landlord or non-UK account type, or if you're preparing your accounts using cash basis accounting.
Option 1: reduce the employee’s gross pay
1. Reduce the employee’s pay
You'll need to reduce the employee's pay each month.
Navigate to the relevant employee’s payroll profile and edit their basic pay in the Monthly Pay section. You’ll need to reduce the amount of pay they receive by the amount that’s being used for the Childcare Vouchers (i.e. if they get paid £1,443 a month and would like to use £243 towards the scheme, reduce their monthly pay to £1,200).
Select ‘Update Payroll Profile’ at the bottom of the page to complete this process.
You can then run payroll as normal.
2. Create a Journal
Finally, you'll need to add the following journal entries dated the same date as the payroll was run, to record the deduction in your accounts:
- Credit the code ‘278 - Childcare Vouchers’ for the amount that was taken off the employee’s salary for the scheme (£243.00 in the example above).
- Debit the code ‘401 - Salaries’ for the same amount if the employee is not a director. If the employee is a director, debit the code ‘407 - Directors’ Salaries’.
Select 'Create New Journal' to complete the process.
Please note that you'll need to enter these journals every month that the employee’s pay is reduced for the Childcare Vouchers.
Option 2: enter the deductions as a salary sacrifice
1. Enter the amount as a salary sacrifice deduction
We’ll use the example of an employee giving up part of their salary to join an employer-provided Childcare Vouchers Scheme.
For example, let’s say that your employee’s basic pay is £2,000 per month and your employee is sacrificing £243 of that towards Childcare Vouchers. You would enter £2,000 in the ‘Basic Pay’ field and enter £243 in the ‘Salary Sacrifice Deductions’ field. This is because for a salary sacrifice scheme to work, the employee must have given up all rights to that salary, so the salary that they’ve given up doesn’t count towards, for example, mortgage applications.
2. Explain the payment of the scheme
When you come to pay the nursery or voucher scheme, explain the payment from your FreeAgent bank account as ‘Other Money Out’ as the transaction ‘Type’ and ‘Other Payroll Deductions’ from the ‘Category’ drop-down menu.
Select 'Explain transaction' to complete this process.