VAT and WHT

Value Added Tax (VAT)

VAT is an incremental tax which is levied on the value added at each stage of processing or distribution of a raw material or product. The full amount of VAT is included in the prices charged to consumers, for whom VAT is simply a sales tax.

VAT is divided into:

• Input: The VAT that was paid (e.g. to Suppliers) and that is claimed back.

• Output: The VAT charged to consumers (e.g. the VAT on Customer Invoices).

VAT must be reconciled and paid over to the applicable Revenue Services in fixed instalments (e.g. monthly, bi-monthly, or quarterly). The amount that is paid over is typically all the Outputs less all the Inputs. (Other adjustments may apply.)

BOS Enterprise handles VAT as explained in these topics:

• Reference: VAT Reconciliation

• Process Guides: VAT Rate Changes

• Process Guides: VAT Types

• Tutorials: VAT Reconciliation

Withholding Tax (WHT)

Withholding taxes refer to advance payments towards Income Taxes. WHT regulations are country specific.

In BOS Enterprise, WHT does not include the tax withheld from remuneration paid to staff (commonly known as pay-as-you-earn (PAYE)).

WHT is usually managed in this manner:

• Taxes which your company withholds, must be paid to the Revenue Services in the following month or tax period.

• The money that was withheld from your earnings, is added to any income taxes due and adjusted when you submit your Income Tax Return a few months after the tax year end.

Setting Up WHT

1. One or more of the following accounts are needed:

   • Income Tax Due: Current Liability Account 

     • The account is credited with the income tax due. The account is debited with the income tax payments and taxes withheld.

   • Income Tax Paid: Current Asset Account

     • Used to record the income tax payments that will most likely be refunded (e.g. if no income tax is likely to be due).

   • Tax Withheld Account: Current Liability 

     • The account is credited with the tax withheld and debited with the payment that is made to the revenue authorities. 

2. One or more of the following Transaction Types are needed:

   • Taxes withheld by Customers

     • The transaction type is used to credit the customer's account and record the tax withheld, as follows:

       • Dr: Income Tax Paid or Income Tax Due

       • Cr: Customer Account

     • The balance of the receipt is entered as a normal Customer Receipt.

   • Taxes withheld from Suppliers

     • The transaction type is used to debit the supplier's account and record the tax withheld, as follows:

       • Dr: Supplier Account 

       • Cr: Tax Withheld Account

     • The balance of the payment is entered as a normal Supplier Payment.

     • The Tax Withheld Account is debited with the amount paid over to the Revenue Services.