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'Recipient Created Tax Invoice - Calculate withholding tax and GST' has been merged into this idea

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Invoices - Enable deduction of withholding tax

A type of tax code should be possible in which the tax is subtracted from, rather than added to, the invoiced amount for that line item.

Rationale: Many countries require that a foreign supplier's invoice be subject to withheld tax if the supplier doesn't have a satisfactory tax treaty entitlement.

Example:

We use a reverse-invoice process for our Australian supplier to record payments due to them based on our activity. This activity often attracts a royalty fee that we must pay.

The UK requires us to withhold 5% of this royalty fee, and pay this over HMRC quarterly.

To create the correct Bill, I enter a line on the "Bill" line showing the total royalty due, and then another line for the tax = a number calculated by typing an arithmetic formula such as

-200*.05

This line is now a negative number allocated to a withholding tax account. The negative number reduces the total on Bill.

This is clumsy manual process prone to errors. I would like to be able to automate the calculation and the allocation of withheld tax to a specified account and the subtraction of this tax -- similar to the way VAT is automatically calculated, allocated to the VAT account, and added to total.

I am aware that many countries have similar tax requirements. It would be good to enable a way for businesses to create withholding tax codes for their particular situation.

32 votes

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DANIEL WARFIELD shared this idea  ·   ·  Report…  ·  Admin →
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  • Andrew Heffernan commented  ·   ·  Report

    To Xero support. Please include this feature ASAP as we are left to explain to the client (Xero subscriber) why we can’t customise an invoice for them to get this outcome.

  • Andrew Carroll commented  ·   ·  Report

    Really think this should be a standard feature of an international software system that costs £56 per month.

  • Carlos BARTE commented  ·   ·  Report

    some of my clients wanted me to show CWT whilst some does not want to. Kindly advise what to do?

  • Freya Pieroz commented  ·   ·  Report

    In Australia, the equivalent of a Buyer Created Invoice is a Recipient Created Tax Invoice (RCTI) and we are also required to withhold tax from payments to suppliers if they have not supplied us with an ABN (so we can't verify that they're registered or not) and we're paying more than AU$75 as per the rules from the ATO, but we are also required to provide the supplier with a Payment Summary detailing how much PAYG tax has been withheld:

    https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/payg-withholding/payments-you-need-to-withhold-from/withholding-from-suppliers/withholding-if-abn-not-provided

  • Norman Cates commented  ·   ·  Report

    I am a New Zealand sole trader and contractor for a company. I submit a timesheet, and they generate a IRD approved Buyer Created Invoice. They send me my payment with GST added, and witholding tax deducted.

    There is no accurate way to extract the witholding tax from the final amount deposited to my account.

    There is a hacky way, detailed here:

    https://www.laurenson.co.nz/2017/09/accounting-for-the-tax-withheld/

    But because Xero doesn't hold a high enough number of decimal places in the percentage field, the amounts are inaccurate by some cents each time. Which over the course of a year increases to a reasonable error.

    I do not have to generate an invoice out of Xero for these payments.

    What we need is a way of acknowledging that witholding payments have been deducted, and work back accurately to the original amount.

    This way of receiving payment is pretty common here in New Zealand, and I daresay other countries like Australia.

    I don't know if this may need some form of automatic invoice to be created, as a stand in for an actual invoice I send out. If it did, then some way of having that generate quickly and pretty automatically would be great.

    As a note, as part of their process, I do get sent their Buyer Created Invoice in my email, so if that could be read in, as an invoice from my side, then that would probably be a good solution, since it provides all the amounts, in precise detail....

    Thanks

  • Tim Cuff commented  ·   ·  Report

    Very new to Xero but really struggling to account for Withholding tax. If I follow Xero advice it works in most instances but my biggest client doesn't want WT deducted on my invoices, and it's confusing to know what to do. I've read about making adjustments and also creating another account but would prefer Xero to clarify options.

  • Nimmi Panchatsharam commented  ·   ·  Report

    Yes we have the same requirement in Indonesia and Singapore. It will be a very good feature to have