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.
DANIEL WARFIELD
shared this idea
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Gareth Lombard
commented
This feature would be so beneficial and not only WHT on cross border transactions but in certain regions larger business are mandated to WHT on invoices and pay over to the revenue offices.
These WHT amounts can be on the sales tax (VAT, GST) etc.So, the ability to charge the full tax rate at 18% (example) and then show the WHT sales tax of 50% of that as a negative. - 9% , so the balance of the invoice due is actually the amount less the WHT amount.
This would be super helpful to track, report and recon properly.
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Samuel Hwang
commented
Yes, this feature would benefit contractors greatly (Imagine contractor/(s) needing to generate hundreds/thousands of such invoices each year. )
There needs to be place in Xero to enter the default Withholding tax tax rate of the Contractor (eg. 20%).
Then, for example, if contracting sales of $6,000 (plus GST) were incurred, then the contractor would create a new invoice to enter the $6,000, then Xero would automatically enter a new row showing Withholding Tax deducted of 20% (ie. $1,500 in this example), thus saving the client time from needing to manually calculate to the $1,500 and manually entering that WT row on the invoice.
(Refer to the sample invoice template attached). -
Andrew Heffernan
commented
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.
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Andrew Carroll
commented
Really think this should be a standard feature of an international software system that costs £56 per month.
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Carlos BARTE
commented
some of my clients wanted me to show CWT whilst some does not want to. Kindly advise what to do?
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Freya Pieroz
commented
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:
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Norman Cates
commented
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
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Tim Cuff
commented
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.
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Nimmi Panchatsharam
commented
Yes we have the same requirement in Indonesia and Singapore. It will be a very good feature to have
