Withholding tax receivable

how can we use amounts allocated by manager automatically in withholding tax receivable account

The withholding tax feature in Manager is for use in jurisdictions where customers are required to withhold tax from their payments against sales invoices and remit the tax to the government. The idea, obviously, is to ensure the government receives the tax as close to the source of funds as possible. Roughly speaking, this is equivalent to a deduction that is taken out of an employee’s pay and given directly to the government.

When withholding tax is indicated on a sales invoice, the amount is posted to Withholding tax receivable, an asset account. Normally, the government provides documentation that the withheld tax was paid by your customer. At that point, you clear the amount to what you owe via journal entry. This part of the process can be thought of as being similar to an employee filing an income tax return, where amounts already paid through deductions are subtracted from the amount owed.

but iam unable to clear it out via journal entry the accounts seems to be not appearing in journal method

This requires investigation by @lubos. I will invite him to join this discussion. As I looked back through prior topics on this subject, I saw many references to aspects of withholding tax or taxes deducted at the source that were described as still under development. In many cases, no resolution was posted, so I’m not exactly sure where things stand. I thought I knew, but apparently I was wrong.

Why do you require journal entry to clear withholding tax? If customer has paid withholding tax, there is a proper mechanism to record this transaction.

Under Customers tab, there will be Withholding tax receivable which will contain the amount how much customer is to pay in withholding tax. When customer pays withholding tax (they will send you some sort of proof), you will be able to record a receipt for withholding tax which will clear (or at least decrease) the amount receivable.

Or are you trying to record something else?

I don’t understand this. You cannot record a receipt because you are not receiving any money. The Accounts receivable balance for the customer will have already been reduced by the withholding amount. It seems to me you need a transaction that credits Withholding tax receivable, but you need a balancing debit. My understanding was that this should be some type of Taxes paid expense account, since the customer is–in effect–paying some of your tax bill for you.

Here is the Summary page for a test business in which there has been only one transaction, a sales invoice for 1,000 with 10% withholding:

Maybe I am missing something, but I don’t see any way to clear the 100 after the customer pays the government except by journal entry–which cannot be done. See the available accounts for a journal entry:

22 AM

And while we are discussing this, how is the Withholding tax account supposed to work? Presumably, if a supplier sent a sales invoice indicating a withholding amount, you should be able to enter the full amount of the invoice on a purchase invoice and indicate a percentage for withholding. The withheld amount should go to a liability account, not an asset account. But I can’t figure a way to make that happen. Nor can I figure out how to enter the purchase invoice with a reduced amount so Accounts payable is correct and add the withholding amount, because the Withholding tax account cannot be selected.

Sir but where will be the receipt amount goes to

Don’t you receive that withholding tax as a “credit” against other tax liabilities.
Lets assume you owe taxes of 300, isn’t the 100 already paid (by others) so that you only owe 200.
Therefore the withholding tax account would be cleared by that payment.
Debit Tax Liabilities 300
Credit Withholding Tax 100
Payment 200

You would add a line to the purchase invoice with the Account “Withholding Payable” which you would create in the Chart of Accounts.

Interestingly, why are there two withholding tax accounts created for one transaction?

Here is the workflow.

When you issue an invoice for 1,000 where 100 is withholding tax, 900 will go to Accounts receivable and 100 will go to Withholding tax receivable

When you click on Customers tab, you will see:

When customer remits 100 to government for withholding tax, they will send “proof” to supplier they have remitted 100 to government. This “proof” can be recorded in Manager when you click on Withholding tax receivable figure under Customers tab.

There will be New Receipt button.

The transaction is fairly simple. Just enter date and amount which customer has remitted to government.

After transaction is recorded, the amount will move from Withholding tax receivable to Withholding tax (maybe the naming of accounts is unfortunate and Withholding tax account should be actually called Withholding tax credits)

Withholding tax receivable indicates how much your customers have to remit to government and Withholding tax indicates how much tax “credits” you have. Withholding tax amount is then generally offset against your income tax at the end of year. It just keeps accumulating, then the final amount is used to decrease your income tax liability.

Basically withholding taxes is a mechanism for government to collect tax on income of businesses during the year. Just like employers are withholding payroll taxes during the year.

The system works OK as per accounting requirements but it’s a bit weak from management point of view. Some people have been asking for some “aging” report on withholding tax receivable because their customers pay invoice amount but are very slow to remit withholding taxes to government. If customer doesn’t remit withholding tax to government, you can’t get tax credit for it so it’s something businesses have to chase too (like they chase accounts receivable).

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Yes
Withholding Tax Receivable - implies it is to be received, yet it is never received as it is paid by others, therefore perhaps - Withholding Tax to be paid.
Withholding Tax - just becomes Withholding Tax paid

Or if the account talks
WHT - Customers to pay
WHT - Customers have paid

In light of @lubos’ explanation, I think your question doesn’t apply anymore, although your example illustrates the basic principle behind what I thought was happening. But I thought wrong.

This is basically what I thought you would have to do, but it made no sense in light of the automatic account Withholding tax. I thought that was supposed to fill the role you described for the liabilitiy account, except for the fact that it was an asset account.

That was my question, too.

Now that I understand the intended workflow, things make more sense. But there are still problems. If income tax is assessed against the personal income of a sole proprietor or partners, rather than against the business, some journal entries will be necessary to move things out via Owner’s equity or partner’s capital accounts. So the two withholding tax accounts should be available for journal entries; they currently are not. For organizational structures where the business pays the income tax, things are OK as they are now, I believe.

Probably so, since two of the forum moderators both misunderstood. Here are my suggestions:

  • Witholding tax receivable becomes Withholding tax - pending. This avoids confusion of calling it payable or receivable, due or obligated, because the company will never pay or receive it, and it isn’t due from the company; nor is there a company obligation to pay it.

  • Witholding tax becomes Withholding tax - remitted. This avoids confusion from calling this anything related to credits, because these are debits in the accounting records.

So far, all this discussion has pertained to the sales invoice side. But when we enter purchase invoices, we also need a (now non-existent) way of recording taxes withheld from the payment. Presently, we just pay the balance due, thereby reducing Accounts payable. But there is no method for recording withholding tax now owed to the government on behalf of the supplier without creating new accounts.

The straightforward method would seem to be to enter the Total amount from the incoming sales invoice and check a box for withholding tax. Manager would then reduce the account payable by the withholding tax amount, which would be posted to a liability account named Withholding tax - payable. This would be cleared by a normal payment.

Currently there isn’t a way to manage withholding tax on supplier side. It has been requested quite a number of times but I didn’t want to implement it until customer side is nailed.

Only from the Withholding Tax “remitted” account as that is what the authorities have received and available for cross crediting. The Withholding Tax “pending” account is non-claimable as its unpaid to the authorities.

Only the Withholding Tax “remitted” account should be selectable and currently is already available for transactions.

0 Jnl - WHT

That’s true if everything goes according to plan and the customer actually remits. But what happens if the customer doesn’t? Are there jurisdictions where the authorities then try to make you directly liable, making it your job to coerce the customer into paying (or reimbursing you after you have to pay)? I don’t know the answer. And obviously, this could get bound up in the need to adjust Accounts receivable. Anyway, as I wrote the previous response, it seemed like there might be circumstances where a journal involving the “pending” account could be necessary. Not a simple situation.

Again, you’re right. I mistakenly checked after I’d temporarily deleted the withholding tax transaction in the test company as part of my experimentation. So the account had disappeared.

SIR THANKS FOR YOUR CONTRIBUTIONS I CLEARLY UNDERSTOOD CONCEPTS OF THESE ACCOUNTS . I AM NOW USING THESE ACCOUNTS IN MY SOFTWARE CLEARLY[quote=“uzair94, post:1, topic:11774, full:true”]
how can we use amounts allocated by manager automatically in withholding tax receivable account
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You can’t use them until your Customer has shown proof that they have been paid. Then once you have that proof, they are converted from being receivable to paid following the above outlined process. Once paid, then you can apply them against over tax liabilities.

Hi Lubos,

I’m new to Manager but have a fair bit of accounting knowledge.

In India, withholding tax (we call it TDS = Tax Deducted at Source) on sales invoices is charged only on the invoice amount and not on the taxes.

EXAMPLE
Invoice Amount … 1000
GST Tax @ 18% … +180
Total … 1180
TDS @ 10% … -100
Net Payable … 1080 = (1000 - 100 + 180)

Currently Manager is calculating withholding tax on entire amount (1180). Im not sure about other countries but this is incorrect in the Indian tax context.

Suggestion: Maybe we could have a checkbox beside ‘Deduct withholding tax’ which says, ‘Calculate withholding tax on taxes also’.

Until this is implemented, you can enter the TDS value manually rather than as a percentage.
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Knowing how Journals get abused, it probably better to add a button next to the “New Receipt” button which handles unpaid/reversal situations.

Withholding tax Receivable is appropriate. Withholding tax suffered is an asset, you will reduce your tax for the year with it.

Receivable here means the customer is yet to bring to you the tax credit (proof of payment).
I would rather we change Withholding Tax Receivable to Withholding Tax credit Receivable and Update Withholding Tax received to Withholding Tax Credit.
You can change the account name in COA can’t you?