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Withholding tax for AR

The introduction of withholding tax in acumatica is very laudable but surprisingly is only limited to AP with check payment. At my end companies act as tax agencies for the government and are required to withhold taxes on all forms of payments/receipts for both AP and AR. I will appreciate if AR is also considered.

  • Guest
  • Mar 29 2016
  • Shortlisted
  • Attach files
  • Guest commented
    November 11, 2018 21:25

    On the withholding tax

    Scenario: I have a client Mark who purchase 100USD goods, with the below invoice details

     

    Invoice amount           = 100

    Sales levy/Tax (5%) =      5

    Subtotal                        = 105

    Vat 12.5%                     =  13.125

    Total                              = 118.125

     

    Ledgers

    Dr   Account Receivables = 118.125

    Cr   sales/income = (100)

    Cr   VAT = (13.125)

    Cr   sale levy/tax = (5)

     

    If Mark is authorize by the Tax authority to withhold tax ie 10%, below will be the expected receipt

     

    Invoice Total  =  118.125

    Less WHT

    (10% of 100) =      10.00  

     

    Net cash received= 108.125 (118.125-10)

     

    Cr   Account Receivables = (118.125)

    Dr   Bank/cash = 108.125

    Dr   WHT/Cooperate Tax= 10

     

    My cooperate tax liability will reduce by 10 whiles Mark’s increase by same. The authority if in doubt of the transactions might ask for their certificate/evidence/receipt before accepting the offset

     

    The reverse is also applicable where I also become a client (with same status as Mark) to another vendor

     

    The other withholding is on the VAT. The Tax Authority can authorize you to withhold from vendors a percentage of the VAT ie 7%

    Using the same invoice the expected payment will be

     

    Invoice amount =  100

    Sales Tax (5%)  =      5

    Subtotal              =105

    Vat 12.5%          =   13.125

    Total                   = 118.125

     

    Less WH VAT

    (7% of 100) =      7.00

     

    Net cash received= 111.125

     

    Cr   Account Receivables = (118.125)

    Dr   Bank/cash = 111.125

    Dr   WH VAT= 7

     

    At the end of the period when filing VAT the vendor reduces his liability by 7USD whiles Mark increase his by same

     

    An entity can be authorization to hold both. With this the total deduction will be (7+ 10) =17 implies the net payment/receipt will read 118.125-17= US$ 101.125  

     

     

    These deductions necessary have to be at payment point and not invoicing as other applications do

    Reason: These mandates are renewable yearly. Mark might have 2018 mandate and be denied 2019 on renewal. In such situation much adjustments will be required If the above invoice was raised in December 2018 and payment made in January 2019

  • Sergey Vereshchagin commented
    August 15, 2017 08:21

    Exactly. We do service for other countries and have to deal with WH in AR :)

  • Olga Anisimovich (Product Manager Financials Team) commented
    May 23, 2017 16:08

    Hello Linda,

     

    you can send the file to me at oanisimovich@acumatica.com and I'll share it with the team.

     

    Thank you so much,

    Olga

  • Linda Bower commented
    May 23, 2017 15:59

    I have a detailed document to send to you but am not sure how to attach to this Idea.  Please advise e-mail address to which I can send the detail

  • Linda Bower commented
    May 23, 2017 15:57

    Details of transactions as requested on Yuri's post:

    Our Client’s Group Accounting Policy and Procedure Template

    Nature

    Withholding Tax

    Transaction overview

    Payments to Our Client by customers from certain jurisdictions are made net of withholding tax. We need to account for the transaction to properly recognise the nature and timing of the transaction. Receipts net of withholding tax require a withholding tax certificate from the customer. This withholding tax credit can be off-set against the tax payable of the entity.

    Transaction  detail

    We invoice a customer for $100. They withhold 15% WHT.

    1.       We invoice the customer (Dr Acc 8000 - $100; Cr Revenue $100).

    2.       Depending on the customer we create a withholding tax provision Dr Acc 4900 $15; Cr Acc 9600 $15). This currently a journal done at month end but should be accrued automatically from a setup in the customer master (WHT Customer Y/N; WHT % (% withheld)). Value of the accrual is Invoice Value * WHT%

    3.       The customer then pays us net of withholding tax (Dr Acc 8400 $85; Cr Acc 8000 $85).

    4.       If customer type is WHT Customer = Y the system should prompt for the value of the WHT short paid. The value of the WHT short paid should be credited to the customer account and debited to the customer WHT account. (Dr Acc 8022 $85; Cr Acc 8000 $15). The customer should get two accounts. One for cash payments due (the original invoice value, including WHT) and another for WHT certificates (the amounts short paid that were paid over to the customer’s local revenue authority). The customer statement for the normal account reflects $0 as we are not expecting any cash from them.

    At the moment we journalise these transactions to the WHT control account at month end based on input from the credit control team. The value of this journal is the value of the WHT paid. This should be allocated at invoice level. This invoice should now reflect as fully paid

    5.       We receive the WHT certificate from the customer for $15. (Dr 9600 $15, Cr 8022 $15). The customer statement for WHT reflects $0.

    Impact

    AR – Receipts from customers

    AR – Certificates due from customers

    GL – Separate control accounts for normal cash receipts and outstanding certificates

    GL – Recognise the Withholding tax expense

    GL – Provision for Withholding tax

    Management Accounting:

    ·         Withholding tax paid

    ·         Cash receipts from customer to include withholding tax short paid

    Accounts

    List the general ledger account nu

    1000 – Revenue (IS – Normally a credit)

    4900 – Withholding Tax Expense (IS – Normally a debit)

    8000 – Accounts receivable control (BS – Normally a debit)

    8022 – Accounts receivable withholding tax control (BS – Normally a debit)

    8400 – Bank

    9600 – Provision for Withholding Tax (BS – Normally a credit)

    Applicable to:

    Our Client’s Limited,

    Other entities where customer pay amounts net of withholding tax

     

     

    Accounting

    1000 - Sales

     

    4900 – WHT Expense

     

    1 Invoice $100

     

    2 WHT Prov $15

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    8000 – Trade Debtors

     

    8022 – WHT Control

    1 Invoice $100

    3 Cash rec $85

     

    4 WHT Paid $15

    5 WHT Cert $15

     

    4 WHT paid $15

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    8400 - Bank

     

    9600 – Prov for WHT tax

    3 Cash Rec $85

     

     

    5 WHT Cert $15

    2 WHT Prov $15

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Our Client’s Group Accounting Policy and Procedure Template

    Nature

    Withholding Tax

    Transaction overview

    Payments to Our Client by customers from certain jurisdictions are made net of withholding tax. We need to account for the transaction to properly recognise the nature and timing of the transaction. Receipts net of withholding tax require a withholding tax certificate from the customer. This withholding tax credit can be off-set against the tax payable of the entity.

    Transaction  detail

    We invoice a customer for $100. They withhold 15% WHT.

    1.       We invoice the customer (Dr Acc 8000 - $100; Cr Revenue $100).

    2.       Depending on the customer we create a withholding tax provision Dr Acc 4900 $15; Cr Acc 9600 $15). This currently a journal done at month end but should be accrued automatically from a setup in the customer master (WHT Customer Y/N; WHT % (% withheld)). Value of the accrual is Invoice Value * WHT%

    3.       The customer then pays us net of withholding tax (Dr Acc 8400 $85; Cr Acc 8000 $85).

    4.       If customer type is WHT Customer = Y the system should prompt for the value of the WHT short paid. The value of the WHT short paid should be credited to the customer account and debited to the customer WHT account. (Dr Acc 8022 $85; Cr Acc 8000 $15). The customer should get two accounts. One for cash payments due (the original invoice value, including WHT) and another for WHT certificates (the amounts short paid that were paid over to the customer’s local revenue authority). The customer statement for the normal account reflects $0 as we are not expecting any cash from them.

    At the moment we journalise these transactions to the WHT control account at month end based on input from the credit control team. The value of this journal is the value of the WHT paid. This should be allocated at invoice level. This invoice should now reflect as fully paid

    5.       We receive the WHT certificate from the customer for $15. (Dr 9600 $15, Cr 8022 $15). The customer statement for WHT reflects $0.

    Impact

    AR – Receipts from customers

    AR – Certificates due from customers

    GL – Separate control accounts for normal cash receipts and outstanding certificates

    GL – Recognise the Withholding tax expense

    GL – Provision for Withholding tax

    Management Accounting:

    ·         Withholding tax paid

    ·         Cash receipts from customer to include withholding tax short paid

    Accounts

    List the general ledger account nu

    1000 – Revenue (IS – Normally a credit)

    4900 – Withholding Tax Expense (IS – Normally a debit)

    8000 – Accounts receivable control (BS – Normally a debit)

    8022 – Accounts receivable withholding tax control (BS – Normally a debit)

    8400 – Bank

    9600 – Provision for Withholding Tax (BS – Normally a credit)

    Applicable to:

    Our Client’s Limited,

    Other entities where customer pay amounts net of withholding tax

     

     

    Accounting

    1000 - Sales

     

    4900 – WHT Expense

     

    1 Invoice $100

     

    2 WHT Prov $15

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    8000 – Trade Debtors

     

    8022 – WHT Control

    1 Invoice $100

    3 Cash rec $85

     

    4 WHT Paid $15

    5 WHT Cert $15

     

    4 WHT paid $15

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    8400 - Bank

     

    9600 – Prov for WHT tax

    3 Cash Rec $85

     

     

    5 WHT Cert $15

    2 WHT Prov $15

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • Yuri Kirilin commented
    July 25, 2016 12:15

    1. Could you please give more examples/details on what deals/transactions in AR the withholding tax applies to?
    2. What are the GL journal entries on the Invoice and the Payment?