Topic: Withholding tax deducted
Adding a facility to process withholding tax (WHT) would greatly improve the usefulness of FA where WHT is applicable - which it is in many places.
In simple concept it would entail coding similar to settlement discount.
In the same way FA deals with settlement discounts on payments from customers and payments to suppliers, there is an additional, similar type of transaction commonly dealt with by accountants - withholding tax (WHT)
When certain (not all) customers pay me, they are obliged to deduct with-holding tax from the amount they pay me.
For example, I invoice $100 to my customer, and he will pay me $97 and then he will pay the $3 balance to the tax authorities - as a payment of tax on my behalf.
As far as the customer is concerned his account with me is zero - the $3 should not appear on the statement I send him.
The accounting for this would be
Dr Bank 97
Dr WHT deducted on my behalf 3 (balance sheet receivable account as opposed to the discount allowed GL acc)
Cr Debtors Control 100
There is no way I see to account for this in FA at the level of customer payment.
The ideal solution would be to have, at the level of customer and supplier set up, an option to process withholding tax on customer or supplier payment.
The reverse can happen when I pay certain suppliers. For example, if I pay my rent I need to deduct 5% tax and pay it to the tax man.
The accounting entry for this would be
Dr Rent 100
Cr Bank 97
Cr WHt deducted by me 3 (balance sheet payable account - as opposed to the GL acc for discount received)
When I pay the tax man the entry would then be
Dr WHt deducted by me 3
Cr Bank 3