Pay and deductions
This article provides a glossary of all the pay and deductions that can be entered into a payment profile or added to payslips when you run a monthly payroll.
Please note that 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.
Pay should be entered into each employee’s payroll profile. These figures are used as the default values for each monthly payroll – payslips for each individual month can then be edited when running a payroll.
Also known as Gross Pay. Subject to tax and NI.
Any allowance that’s subject to tax and NI. For example, London weighting or other regional allowances.
Any other pay that's subject to tax and NI. For example, a monthly travel allowance received as salary or annual leave.
Pay not subject to tax or NI
Any other pay that's not subject to Tax or NI. For example, Childcare Vouchers exempt from tax and NI that are not being taken under a salary sacrifice scheme.
If you are taking your childcare vouchers under a salary sacrifice scheme then you should deduct the amount you are sacrificing from your basic pay, as HMRC say that for the scheme to work you must forfeit the right to that pay.
The following options are available when editing payslips during each monthly payroll. Choose 'Edit Payslip' from the prepare monthly payroll screen.
Irregular employee payments
If an employee is not paid on a regular basis, select 'Yes' in the 'Employee paid irregularly' option when creating their payroll profile.
Any one-off overtime payments for this month. Subject to tax and NI.
Any one-off bonus payments for this month. Subject to tax and NI.
Any commission earned this month. Subject to tax and NI.
Monthly statutory pay
Tax and NI is automatically calculated for statutory pay – use HMRC’s statutory payments calculators to get the figures that you need to add here.
Statutory maternity pay (SMP)
Ordinary statutory paternity pay
Additional statutory paternity pay
Statutory adoption pay
Add any monthly deductions that need to be made here.
Include any payroll giving an employee has asked you to take from their pay. FreeAgent will automatically make the necessary adjustments to their total pay, tax, and NI.
Read more from HMRC →
Other deductions from net pay
Include items such as trade union subscriptions and employee paid health cover. Items subject to Class 1 NIC but not taxed under PAYE regulations Include items such as non-cash vouchers and payments of an employee's personal liabilities. Exclude pension contributions.
To record an attachment of earnings order or direct earnings attachment, enter the amount under 'other deductions from net pay'. You can either do this in the employee's payroll profile (if the attachment is on-going) or on the payslip (if the attachment is a one-off). Explain the payment as 'Other Money Out > Other Payroll Deductions'.
Monthly pension contributions
Add any pension figures here if you operate a pension scheme which allows staff to pay into a pension fund directly from their wages. The company might also put some money into the fund for them.
Net pay contributions
If the company pays the pension out of the employee's gross salary and the pension company doesn’t claim tax relief for the employee then it would be a net pay arrangement pension. FreeAgent assumes the employee is eligible for tax relief and the pension scheme is registered with HMRC.
Read more from HMRC.
Relief at source contributions
If the pension company is claiming the tax relief for your employee, then the employee is paying the premium out of his/her net salary. This is a “relief at source” pension..
Read more from HMRC.
Include any pension contributions made by the company.
Tick the relevant box from the 'Deduct student loans?' options and choose the appropriate plan type.
For more information, please see this article.