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Level 4

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

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 Rehman.

Solved
Best answer 10-22-2019

Best Answers
Moderator

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

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.

View solution in original post

14 Comments
QuickBooks Team

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

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.

Level 4

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

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.

QuickBooks Team

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

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. 

Level 4

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

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.

Moderator

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

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.

View solution in original post

Level 4

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

Hi GlinetteC,

 

Thanks for your valuable input. Good workaround!

 

Will be more thankful to you if you may share the accounting entries that system will generate on back end.

 

Regards,

Abdul Rehman.

QuickBooks Team

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

Joining the thread to quickly answer your follow- up question, Abdul.

 

There's an option where you can check which accounts are affected when a transaction is created. Here's how:

 

  1. Click More at the bottom part of the transaction.
  2. Select Transaction Journal

Please continue to visit us again or add another reply below if you need more help. 

Level 4

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

Thanks Jenop for your valuable input.

Level 4

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

Hi GlinetteC,

 

Superb resolution!

I tested and found Okay.

 

Will you please help me more?

 

Now take another complex scenario (which is my actual need): in the first line of the bill I also want to include the tax that will be paid to supplier (not to tax authority - it is separate and you just replied me to handle this matter).

 

Means there are two taxes: 1. The tax which is required to  pay the supplier (item/service amount + tax amount)

2. There is another tax (that will be calculated on the total amount obtained above i.e. (item/service amount + tax amount)) and this amount will be paid to tax authority on supplier's behalf.

 

Please feel  free to put queries if the said detail is not understandable.

 

Regards,

Abdul Rehman.

QuickBooks Team

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

Thank you for your time today, Abdul Rehman.

 

Adding an expense category is the workaround that you can use for the tax that will be paid to the supplier.

 

To set up the account, you can follow these steps:

  1. On the left panel, click Accounting and choose Chart of Accounts.
  2. Click the New button, and select Expenses from the Account Type.
  3. Select the Detail Type depending on your situation.
  4. Enter a name in the Name field. In my example i entered "Tax paid to supplier".
  5. Click Save and close.

Then, create a bill or expense and add the category we just created.

 

I'm adding this sample screenshot on how it looks like:

 

Once recorded, you can go to the Chart of Accounts and run the report for each category, so you have a reference.

 

Please know that we are here to answer any questions you have about QuickBooks Online suppliers. 

Level 4

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

Hi RenjolynC,

 

Your idea/workaround is really appreciable!

 

But unluckily, the purchase reports are reflecting the wrong data till the Expense is recorded against the tax amount deducted from bill (to directly pay to tax authority). And I want to record the said Expense at the time when the payment to tax authority will be made actually. So, what should I do in the gap/duration exists between the payment to supplier and payment to tax authority? 

 

Please help, how to overcome this  issue.

 

Regards,

Abdul Rehman.

QuickBooks Team

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

Expenses are really shown as positive entries in the purchase report, Adbul.  

 

As an additional workaround, record the the payment to the tax authority separately as an expense transaction. Then, add notes to it that it was for the tax agency since there's no option to link them together to the original purchase. 

 

I'd also recommend seeking advice from your accountant. This is to make sure everything is recorded properly based on your local taxation guidelines.  

 

Always visit the Community if you need further help with QuickBooks Online. 

Level 4

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

Thanks JenoP,

 

Will you guide one more thing that if a line is inserted in Bill with -ve sign, then that will it be reflected again in purchase reports as +ve value and will be added in total expense? While this is not the real expense thats why entered with -ve sign.

 

Regards,

QuickBooks Team

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

No, because bills are posted under your accounts payable, Abdul.

 

Aside from that, the account affected when creating a bill is a liability account. This is why we recommend seeking advice from your accountant on how you can handle special cases like this. 

 

You can always count on us if you have other questions in mind. Thanks!