pay roll calculations

Although I will try and answer your problem, this is not in the syllabus for Paper F3!

The basic entry for wages is CR cash and DR wages.

Tax on the gross wage has to be deducted by the company (and paid over to the state) the employee will only get the net amount.
Also, national insurance (social tax) payable by the employee has to be calculated on the gross wage less the income tax, and again is subtracted from the amount payable to the employee, and has to be paid over to the state.

So the entry becomes:

CR Cash (with the amount actually paid to the employee – the gross wage less the income tax and national insurance)
DR Wages (with the gross wage – this is what it is actually costing the company)
CR Income Tax Liability (with the income tax calculated – this is owing to the state)
CR NIC liability (this is the national insurance owing to the state)

In addition, the company has also to pay some NIC/Social Tax itself to the state – it is an extra cost for the company and makes the cost of employing the person higher.

So the entry for this is

DR wages (it increased the total wages expense for the company)
CR NIC liability (it means more NIC is owing to the state)