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Abdul Rehman
Abdul Rehman
October 21, 2019
Solved

How to record and pay withholding tax on supplier's behalf?

  • October 21, 2019
  • 2 replies
  • 0 views

Hi All,

 

In simple terms, we are required to withhold a portion of the balance due on supplier's Bill and pay that portion directly to the tax authority. Please guide that how to handle the scenario in QBO.

 

Regards,

Abdul [removed]

Best answer by GlinetteC

Hi Rinjolync,

 

First thanks for sharing detail with example. Its quite understandable. 

 

But please note that the amount of Bill is 110, while we have to pay 100 AED to the supplier. So, how  this  (tax of 10 AED) will be subtracted from total amount to have net amount of 100 AED. Further "paying the tax amount to the respective tax agency will be done out of QBO" is not understandable.

 

Regards,

Abdul Rehman.


It's good to have you back, Abdul Rehman.

 

We have another recommendation and this is to create a liability account. This way, we can keep track of the balance due from the supplier's bill, and the tax amount deducted on their behalf. Here's how:

 

  1. Click Accounting on the left panel, and then select Chart of Accounts.
  2. Click the New button.
  3. From the Account Type drop-down, select Current liabilities.
  4. From the Detail Type drop-down, select Other current liabilities.
  5. In the Name field, enter "Tax on supplier's behalf".
  6. Click Save and close.

Afterwards, you can edit the bill and enter a negative amount in the Tax on supplier's behalf.

 

You can refer to the screenshot for your guide:

You also need to create an Expense transaction to pay the portion of the tax on the supplier's behalf to the tax authority.

 

Please see attached screenshot:

 

I'd still recommend reaching out to your accountant on what account to use for proper recording.

 

 

Just let me know if you have any other questions on this. I'd be glad to help.

2 replies

RenjolynC
RenjolynC
October 21, 2019

I've got the step on how to get this done, Abdul Rehman. 

 

The instructions will require you to create an expense account and an item. This way, we can keep a record of the transaction.

 

Let's start by creating the expense account by following these steps:

  1. On the left panel, click Accounting and choose Chart of Accounts.
  2. Select the New button.
  3. From the Account Type drop-down menu, select Other Expense.
  4. Choose Other Miscellaneous or Other Expense from the Detail Type drop-down list.
  5. Enter "Withholding Tax Expense" in the Name field.
  6. Click Save and close.

After the steps above, let's proceed in creating the item. Here's how:

  1. Click the Gear icon located in the upper right-hand corner.
  2. Under Lists, select Product and Services.
  3. Choose Service from the Product/Service Information window.
  4. Enter "Withholding Tax" in the Name box.
  5. Under Purchasing information, select the withholding tax expense account you created from the Expense account drop-down.
  6. Click Save and close.

Once done, you can create an expense or bill and include the withholding tax. 

 

For any additional questions, please let us know. We're always here to help. Thanks.

    Abdul Rehman
    Abdul RehmanAuthor
    October 22, 2019

    Hi Rinjolync,

     

    Thanks for sharing workaround for the subject requirement.

     

    Means we have to handle it manually - no issue. But will you guide that how to keep the track/link of the Bill creating for tax with the original bill made for supplier? I mean, I created a bill for certain supplier and have to withheld some withholding tax. Now I have to create another Bill for this withholding tax amount (as you replied in detail). Query is that how these two bills will be linked?

     

    Kindly clarify this OR confirm if you are not getting my query?

     

    Regards,

    Abdul Rehman.

    RenjolynC
    RenjolynC
    October 22, 2019

    Hi there, Abdul Rehman.

     

    You don't need to create a separate transaction if a bill is already created for this supplier. You just have edit the bill and include the item under the Item details section. Then, make sure to select Exempt from the Tax column. 

     

    Here's a sample screenshot for reference:

     

    Once done, you can run the withholding tax account in the Chart of Accounts. This report helps you track the total amount deducted from the supplier's bill. Also, use the information when you pay and file the tax outside of QuickBooks. 

     

    Here's how:

    1. On the left panel, click Accounting and select Chart of Accounts.
    2. Find the withholding account in the search field. 
    3. Click the Run report link under the Action column.
    4. Choose the Report period and hit the Run report button.

    Please let us know if you have more questions regarding the steps and we will get back to you. Thank you. 

    M
    Manoj Mehta
    December 23, 2020

    @Abdul Rehman - I am a bit late in the game but I was having a similar issue.

     

    There's an easy solution to this. When you are creating the Supplier Bill, add an additional line with category "Withholding Tax Payable" (or whatever you have named the liability account on your CoA), and put a negative amount there. For instance if the Bill amount was $1,000 and WHT rate is 5%, then you'd put the invoice amount as $1000 and -$5 to the WHT Payable account. See attached screenshot as an example.

     

    There's another way to do this.  You can create a Supplier Credit for this supplier with the WHT amount.

     

    Hope this helps!

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