Create a new IR35 General Ledger posting code

We recommend you create a new posting code(s) for IR35 deductions within the Balance Sheet section of your chart of accounts.

You can check your chart of accounts in Finance, General Ledger & Analysis, General Ledger, Reports, Chart of Accounts.

Use Finance, General Ledger & Analysis, Create / Amend Master Files: Account Codes, Cost Centres, Posting Codes to extend the Chart of Accounts as required.

Manage deductions through Sage 50cloud Payroll

If you use the Sage 50 Payroll Integration functionality with Line 500/Sage ERP 1000, and you manage deductions as part of your normal payroll processing, there are some nominal link changes and additional postings you must make in Line 500/Sage ERP 1000 to account for the IR35 deduction.

Using nominal link

To ensure your nominal link posting are correct, within Sage 50cloud Payroll you must you must adjust your nominal link settings to account for the IR35 element. Find out how >

Once this is done, the nominal link posts a debit amount to the IR35 deductions General Ledger posting code.

In Line 500 / Sage ERP 1000, post the invoice from your contractor as normal, plus a credit note to reduce the amount due by the IR35 deduction you've made. For an example, please refer to the Purchase invoice and credit note example section.

Using manual salary journals

If you normally post manual salary journals in Line 500/Sage ERP 1000, for any deemed employees you must post the following four journals to account for IR35 deductions:

G/L Posting Code	Description	Debit	Credit
P1	Employers NI - The total employer NI contribution under IR35.	Debit
P2	PAYE - The total PAYE deducted under IR35.		Credit
P3	National Insurance - The total employer and employee NI contribution under IR35.		Credit
P4	IR35 deduction - The total amount withheld under IR35.	Debit

Where:

• P1 is the relevant General Ledger posting code for Employers NI.
• P2 is the relevant General Ledger posting code for PAYE.
• P3 is the relevant General Ledger posting code for National Insurance.
• P4 is the new General Ledger posting code for IR35 deductions.

For deemed employees no other journals are required, for example, for gross pay or net pay.

You should also post the invoice from your contractor as normal, plus a credit note to reduce the amount due by the IR35 deduction you've made. For an example, please refer to the Purchase invoice and credit note example section.

Manage deductions outside of your payroll

If you process IR35 deductions separately from your payroll, you should post the invoice from your contractor as normal, plus a credit note to reduce the amount due by the IR35 deduction. For an example, please refer to the Purchase invoice and credit note example section.

When you pay the deduction to HMRC, post the bank payment to the new General Ledger posting code for IR35 deductions to clear the liability.

If the IR35 deduction is to be offset rather than paid directly to HMRC, you can post further journals to move the balance as required.

Purchase invoice and credit note example

For the invoice you must use the appropriate VAT code dependant on the supply.

Type	Date	G/L Posting Code	Details	Net	T/C	(VAT)
Purchase invoice	Invoice date	G1	Invoice	1000.00	V1	(200.00)
Purchase credit note	Date IR35 calculations processed	G2	IR35 deductions	300.00	V2	(0.00)

Where:

• G1 is the relevant General Ledger posting code for Goods/Services.
• V1 is the relevant VAT code used as before this legislation.
• G2 is the new General Ledger posting code for IR35 deductions.
• V2 is a zero-rated VAT code. If using the Making Tax Digital functionality, this should be flagged as Exempt.

When you pay the invoice, you can allocate the credit note and pay the difference to your contractor.