How can I close a Customer Invoice when I receive Payment but the Customer withholds VAT? (They pay it themselves)

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How can I close a Customer Invoice when I receive Payment but the Customer withholds VAT? (They pay it themselves)

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vat withholding v10

Community Question

We raise customer invoices:

the customer will pay us teh due amount, however since they are regulated by the tax authority, they withhold 6% of the amount due for VAT, and they directly send that money to the tax authority...However, in reality the customer has rightfully paid in full. If you see the attached file, it shows a due amount, but in reality that amount was WithHolding Tax which was deducted by the customer and paid to the tax authority on our behalf. Thus that amount needs to be shown as paid, but also we need to record that as Tax paid and that should be reflected in the tax report generated every month..Please advice.

Ray Carnes (ray)

Best Answer

One possible way:

When taking the Payment from the Customer, check "Mark invoice as fully paid" instead of "Keep open". 'Pay' for the balance using the Tax Received account.

Complete the REGISTER PAYMENT Wizard like this:

Since you have already taken the payment and kept the Invoice OPEN, you would need to create a new Journal so that you can 'pay' the Invoice and essentially do the same thing.

Create a Journal like this:

Now you can pay the Invoice by completing the REGISTER PAYMENT Wizard like this:

Your TRIAL BALANCE before the payment:

Your TRIAL BALANCE after the payment:

The INVOICE after the payment:

The GENERAL LEDGER entries:

Note that the TAX REPORT will not show that the Customer has paid part of the VAT, so you will need to create a Custom TAX TO BE REMITTED Report to accompany the regular TAX REPORT.

Activate DEVELOPER MODE, and create a NEW Financial Report like this (right click the images below and select VIEW IMAGE or OPEN IMAGE IN NEW TAB to see a larger version)

The finished Report will look like this (the comment was added by clicking the PENCIL icon at the Top of the Report when run):

Ermin Trevisan

What a great answer!

Paulo Matos

How can I up vote 1000 times on this answer? Thank you @Ray

Ray Carnes (ray)

😀

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