I have a client who runs two Ltd companies one is the main retail company and the other is a company set up to sell franchises of the main company. He has recently taken on a new employee who will be working on his franchise business but will be paid through the main company payroll. I just wanted to check that my thoughts on accounting for this are correct as follows -
Charge the gross wages and employers NI to the Franchise business P&L but post the usual balance sheet entries (NI, PAYE, Net Wages etc ) to the main company balance sheet as these relate to the main company payroll (and it will also make things easier when reconciling the clients payment of paye and NI to HMRC with the books).
If the employee is employee of the franchise business but is paid through the retail business then you will need to have some sort of intercompany balance to account for the movements. Effectively the retail business will be paying fo the liability of the franchsie business. Journals would be
Dr Balance Sheet (Intercompany - Franchise Business) £110
Cr Bank (net pay) £60
Cr HMRC (EE NIC, ER NIC and PAYE) £50
Have put in some make up figures to show.
From your post it is not clear if the employee is on the payroll of the Franchise company or not. If so they there would be an intercompany movement similar to above. If they are an employee of the retail company but merely doing some work for the franchise company then the payroll journal should go through the retaili company with some appropriate recharge going the franchise company. Again probably through an intercompany adjustment.
