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)

ℹ️ Very few of our clients encounter WHT, therefore, BOS Enterprise does not automate the process. However, you can contact us to create custom actions or reports for you if WHT is a regular part of your business.

Depending on a country's regulations, taxes must be withheld from employees (Pay-as-you-earn or PAYE) and from certain contractors that deliver a personal service.

As a business you may encounter WHT under two circumstances, although most likely only one of the two options will apply:

1. You must withhold taxes from contractors and pay it to the applicable Revenue Service instead of the contractor.

2. Customers must withhold taxes from payments made to you. Customers must pay these taxes to the applicable Revenue Service and issue you with proof. (In South Africa, you should receive an IRP5 annually and may reduce your provisional tax payments with the amounts withheld.)

Setting Up WHT: Taxes are withheld from you

1. Create a current liability account: Income Taxes Due or a sub-account of Income Taxes Due, named Income Tax Paid, if you want to keep the transactions separate.

   1. Navigate to Accounting (e.g. Main Menu > Setup > Accounting)

   2. Click Accounts (tab).

   3. Click Add Account (button).

   4. Complete the row as follows:

      1. Name = Income Taxes Due

      2. Category = Current Liabilities

   5. Click Save (button).

   6. Click Rebuild (button).

2. Create a Transaction Type to credit the customer's account and record the tax withheld, as follows:

   1. Navigate to Transaction Types (e.g. Main Menu > Setup > Transactions > Transaction Types (tab)

   2.  Right click Customer Receipts CR and click Copy to New Transaction Type on the context menu.

   3. On the new transaction type, change the following fields:

   4. General

      1. Description = Customer Receipts WHT

      2. Code = CR WHT

   5. Accounting

      1. Dr Category = Current Liability

      2. Dr Account = Income Tax Due

3. A customer receipt is processed in two steps:

   1. Customer Receipts (CR):

      1. Dr Bank (the actual amount you received)

      2. Cr Customer

      3. Allocate the amount to invoices as you normally would. The invoices should show a short payment equal to the tax withheld.

   2. Customer Receipts (WHT):

      1. Dr Income Tax Due (the tax amount withhold)

      2. Cr Customer

      3. Allocate the amount to invoices as you normally would. When both steps are recorded, the invoices should be fully allocated.

Setting Up WHT: You must withhold taxes from supplier payments

1. Create a current liability account: Withholding Tax as follows:

   1. Navigate to Accounting (e.g. Main Menu > Setup > Accounting)

   2. Click Accounts (tab).

   3. Click Add Account (button).

   4. Complete the row as follows:

      1. Name = Withholding Tax.

      2. Category = Current Liabilities.

      3. Default = Withholding Tax.

   5. Click Save (button).

   6. Click Rebuild (button).

2. Create a Transaction Type to capture the withholding tax as follows:

   1. Navigate to Transaction Types (e.g. Main Menu > Setup > Transactions > Transaction Types (tab)

   2.  Right click Supplier Payments (SP) and click Copy to New Transaction Type on the context menu.

   3. On the new transaction type, change the following fields:

   4. General

      1. Description = Supplier Payments WHT

      2. Code = SP WHT

   5. Accounting

      1. Cr Category = Current Liability.

      2. Cr Account = Withholding Tax.

3. Enable the WHT fields on the Supplier Payments (SP) transaction as follows:

   2. 1. Navigate to the Ledger (e.g. Main Menu > Accounting > Ledger).

      2. Click New (button) > Supplier Payments.

      3. Click the Field Chooser (*) and check the checkboxes next to WHT and WHT%.

      4. Click Menu (button) > Save or Save (All Users) to always display these fields.

4. Capture the Supplier Payments (SP) transaction as follows:

   2. 1. Date / Period = Select the applicable date.

      2. Reference = Type a reference (e.g. Payment Made).

      3. Supplier = Select a supplier from the dropdown list.

      4. Bank = Select a bank account from the dropdown list.

      5. Amount = Type the amount that was paid to the supplier.

      6. VAT = No VAT 

      7. On the first line, enter the percentage tax that is withheld in the WHT% field. The WHT amount is automatically calculated. Make a note of this amount.

      8. Allocate the payment to invoices. The invoices should reflect a short payment equal to the WHT amount.

5.  Capture the Supplier Payments WHT transaction as follows:

   2. 1. Date / Period = Select the applicable date.

      2. Reference = Type a reference (e.g. Taxes Withheld).

      3. Supplier = Select a supplier from the dropdown list.

      4. Taxes Withheld = The account should automatically be selected.

      5. Amount = Type the amount of tax that was withheld as previously calculated.

      6. VAT = No VAT.

      7. Allocate the tax withheld to invoices.

6. Pay the taxes withheld to the applicable Revenue Services when due (PAYE due date in South Africa).  

7. Capture the payment using Expenses, General Bank Payments or a similar transaction type. The payment should equal the credit balance of the Withholding Tax account, and that account should be zero after the payment is captured.