TAX Paid by Customer to Authority

1

I have been working on TAX module according to the general methods.

But now, I have a customer, a government office and who doesn’t pay the tax amount to us.
Instead, they paid the tax amount to the TAX authority and issue us a yearly certificate that says my sales tax amount on the invoice has been paid to the TAX authority.

I may submit that certificate to the TAX authority to adjust with the TAX Payable amount.

The problem is, if I follow the general rules and record “Receive Money” excluding the TAX amount which they actually paid to us, the invoice would remain partially paid. But, I want them to be shown as fully paid.

So, is there any idea how to work with this kind of scenario?

2

Yes, create a Balance Sheet - Asset account called “Government Office Tax Paid”.
When the Government Office pays you, add an extra line to the Receive Money, say Invoice 100 & tax 10, then

Accounts Receivable + Government Office 100
Government Office Tax Paid -10 (note the minus)

Now the Invoice will be fully paid and the tax will be itemised so it can be reconciled with the certificate.

3

You haven’t given all necessary details to be sure, but it sounds like you could use the withholding tax feature. This is meant for tax withheld at the source and paid to the authority by the customer.

4

Always love your solution.

I already did this.

I created two accounts under TAX Payable Group

Tax Payable
a. TAX paid by Customer
b. TAX to be Paid

All sales taxes go under (b) Tax to be paid account including the amount of govt invoice.
And, I recorded the following.

INVOICE

A/R>Customer… …(Dr.) 115
Sales…(Cr.) 100
(b) Tax to be Paid…(Cr.) 15
…
Invoice Total…115

Receipt
Cash…(Dr.) 100
A/R>Customer…(Cr.) 115
(a) TAX paid by Customer… (Cr.) -15
…
Total Receipt…100

In that way, customer invoice is fully paid but I know it’s wrong.
Because, the Tax is recorded twice and I don’t find any idea to reconcile with the certificate.

5

You should not be doing anything with taxes posted to accounts you created directly, unless you have assigned tax codes to post to those accounts. You can post taxes to accounts you create, but they still have to pass through Manager’s tax module. This Guide provides information on custom tax payable accounts: https://www.manager.io/guides/7171.

I really think you need to investigate withholding tax, though. Unfortunately, there isn’t a guide for this yet, because only the sales invoice side of it has been implemented. But here is a description by @lubos about the workflow:

The capability was designed for the situation you describe.

6

Tax Payable
a. TAX paid by Customer (I used this directly)
b. TAX to be Paid (this is default tax entry, not direct)

Anyway, it was all wrong.
I really need to study withholding tax.

Thank you for sharing the link for me.

7

The account to record the withheld tax must be an asset.

This way when u enter the -10 it will credit account receivable and debit the asset account. In the year end you will credit the asset, and debit your income tax payable account to reduce your tax liability

8

So let say you issue a sales invoice on 1000 and the customer withholds and pay 200 out of it to the government as tax

When receiving the money

Account receivable → Customer: 1000
Tax withheld by customer a/c: -200

The effect is

Debit cash/bank 800
Debit tax withheld by customer a/c 200

Credit account receivable 1000

9

The Withholding tax receivable account is an asset account. That is where the money withheld by the customer is reflected.

10

@Abu_Hasan, see the new Guide on withholding taxes: Account for withholding tax on sales invoices | Manager.

11

This is exactly the solution of my problem.

But, recurring sales invoice doesn’t have any option for withholding taxes.
I have to edit the invoice every month.

Would you please draw lubos’s attention!

12

I will put this in a new topic.