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.

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.

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. 

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.

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.

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. 

Thanks Jenop for your valuable input.

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.

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. 

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.

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. 

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,

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!

Hello,

Can you advise how to  setup your account   when the customer deducted  withholding tax from your  invoice. I see the one for supplier  would it be similar?

Janet

Glad to have you here in the Community, @Sheen Solutions.

You can set up a withholding tax expense account and withholding tax expense item to record tax withheld by your customer. Let me walk you through the process.

Firstly, let's set up a withholding tax expense account. Here's how:

1. Click the Gear icon, then select Chart of Accounts.
2. Select New.
3. In the Account Type drop-down, choose Other Expense.
4. Choose Other Miscellaneous Expense from the Detail Type drop-down.
5. Name the account as Withholding Tax Expense, then click Save.

Then, let's set up a withholding tax expense item.

1. Click the Gear icon, then select Product and Services.
2. Select New, then choose Service.
3. Name the item as Withholding Tax.
4. Select the Withholding tax expense account you created from the Income account drop-down.
5. Click Save and close.

Once done, you'll need to use a credit note to charge off the withholding tax as an expense if your customer pays their invoice but withheld tax. For more guidance, feel free to check out this article: How do I record tax withheld by my customer?

As always, feel free to visit our QuickBooks Community help website if you need tips and related articles in the future. 

Keep in touch if you need any more assistance with this, or there's something else I can do for you. I've got your back. Have a good day and stay safe.

Hi,

RenjolynC. Thanks for you guide on how to record WHT on behalf of supplier. 
However my concern is that under the gear > to add product and services > theres only income account and no purchase.

Also, my supplier is recorded using USD while, my account and bank is using MYR. Heres make it more complicated. 

If you may guide me. Thank you

We can try other ways on how to set up the service item, syatirah.

Aside from the Gear icon, you can add the service item through the Sales menu and select Products and Services. I'd suggest using a private browser when doing so to avoid unexpected behavior within QuickBooks. You can use these keyboard shortcuts to open one. 

• Google Chrome: Ctrl + Shift + N
• Mozilla Firefox: Ctrl + Shift + P
• Safari: Command + Option + P

I'll show you an alternative way on how to add items:

1. Log in to QuickBooks Online using a private browser. 
2. From the left menu, select Sales and click Product and Services. 
3. At the upper-right, click New.
4. Select Service as the type. 
5. Enter the details needed. 
6. Under Purchasing information, check the I purchase this product/service from a supplier box.
7. There, you can select the Withholding tax expense account under the Expense account drop-down.
8. Once done, click Save and close.

I'm also attaching a screenshot for your reference:

These articles below will also help you set up and manage your inventory as well as handling Multi- currencies. 

Feel free to leave a reply below. My colleagues and I are always ready to help. You take care!

@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!

Dear Mark, 

Thanks for the elaborate process of creating a WHT tax account. A company invoices a customer Ksh 979,520.80. The customer withholds 3% of Ksh 844,414.00 as contractual fees which comes to Ksh 25,333.00. I did create WHT account as indicated above. Next the same client being a govt entity deducts a VAT-WHT tax of Ksh 16,888 and pays the balance which is equivalent to 2% of Ksh 979,520.80 which appears as a credit in my tax returns with Tax Authorities. Kindly advise how to create Vat Withholding account which reduces VAT payable from 16% to 14%.

r

What about when we recorded the bill and payment will be made through paid bill option?

Please reply. 

Yes, you can use use the Pay Bills option to record the payment, Jawed1st.

There are two ways to pay bills. One by clicking +New, then Pay bills. Or go to the Expenses from the left menu, then Suppliers. 

Open the supplier's account and find the unpaid bill. From there, you'll the Pay bill option as well. I'm adding this articles for instructions and detailed steps: Learn how to track bills and record the payments.

Also, if you have additional questions about paying withholding tax on supplier's behalf,  I recommend consulting with your accountant. They'll provide instructions since they know what accounts to use to track them in QuickBooks.

Don't hesitate to post again if you have other questions. I'm always around to help you with any QuickBooks concerns that you have.

Setup the Withholding Tax Account as a bank account