Show deductions under salary sacrifice
This article explains how to record salary deductions in FreeAgent, such as pension contributions or the car and cycle to work scheme, when an employer is making contributions and the employee is using salary sacrifice.
To record the salary sacrifice, you’ll need to:
- Enter the contribution in the employee's payroll profile.
- Explain the transaction once the money has been paid out of your business bank account.
Please note:
- 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.
- You’ll need full (level 8) access to your FreeAgent account to follow the steps below.
1. Enter the salary sacrifice in the employee’s payroll profile
You’ll need to enter the salary sacrifice contribution when creating the employee’s payroll profile.
To do this for salary sacrifice pension contributions, select ‘Yes, making contributions’ for ‘Are they making pension contributions?’ and select ‘Salary Sacrifice’ as the ‘Contribution type?’ or enter the amount under ‘Salary Sacrifice contribution’ if you calculate the amount manually.
Find out how FreeAgent can automatically calculate the pension contributions.
If the salary sacrifice contribution is not a pension contribution, enter the amount of the contribution under 'Salary Sacrifice Deductions'.
2. Explain the payment
Once the relevant bank transaction has been imported in FreeAgent via a bank feed or uploaded from a bank statement, you’ll need to explain it using the appropriate ‘Type’ and ‘Category’ as detailed below.
Pension salary sacrifice payments
If the transaction relates a payment to the pension company, select ‘Other Money Out’ from the ‘Type’ drop-down menu and ‘Pension Creditor’ from the ‘Category’ drop-down menu.
Other salary sacrifice payments
If the payment relates to a non-pension salary sacrifice scheme, select ‘Other Money Out’ as the transaction ‘Type’ and ‘Other Payroll Deductions’ from the ‘Category’ drop-down menu.
Select ‘Explain transaction’ to complete the process.
VAT
Please note that FreeAgent will not record VAT against salary sacrifice transactions. Therefore, If you’re registered for VAT and need to account for VAT on these transactions, you’ll need to adjust box 4 of your VAT return by creating journal entries.
If you are unsure which journal entries are required, please ask your accountant.