Bills with Withholding Tax: Process Activity

The following activity will walk you through the process of applying a withholding tax to an AP bill, paying the bill, and preparing a new revision of a tax report.

Story

Suppose that on January 31, 2024, the SweetLife Fruits & Jams company purchased consulting services from the MapleLeaf Ads Co. company, which is located in Canada. The payment made to the foreign vendor is subject to withholding tax. The 01-2024 tax period is currently closed, and you already have the tax report prepared and released for this period. You need to prepare another revision of the tax report to include the payment to the vendor in the report. (The Update Closed Tax Periods check box is selected for the tax agency on the Vendors (AP303000) form.) Acting as a SweetLife accountant, you need to process and pay an AP bill to which a withholding tax will be applied, and prepare a new revision of the tax report.

Configuration Overview

In the U100 dataset, the following configuration tasks have been performed to prepare the system for this activity to be performed:

  • On the Enable/Disable Features (CS100000) form, the VAT Reporting feature has been enabled.
  • On the Vendors (AP303000) form, the MAPLELEAF vendor account has been configured and the VATTAX agency has been configured.

Process Overview

In this activity, you will first update the settings of the vendor on the Vendors (AP303000) form. On the Bills and Adjustments (AP301000) form, you will create a bill for this vendor and review how the withholding tax is applied to the document. You will then release the bill and pay it on the Checks and Payments (AP302000) form. After you release the payment, you will review the GL transaction generated by the system on the Journal Transactions (GL301000) form. Finally, on the Prepare Tax Report (TX501000) form, you will prepare the second revision of the 01-2024 report to include the withholding tax in it. You will release the new revision of the tax report on the Release Tax Report (TX502000) form and make sure that a tax bill has been generated by the system.

System Preparation

To prepare the system, do the following:

  1. Launch the MYOB Acumatica website, and sign in to a company with the U100 dataset preloaded. You should sign in as an accountant by using the johnson username and the 123 password.
  2. In the info area, in the upper-right corner of the top pane of the MYOB Acumatica screen, set the business date in your system to 1/31/2024. For simplicity, in this activity, you will create and process all documents in the system on this business date.
  3. On the Company and Branch Selection menu, on the top pane of the MYOB Acumatica screen, select the SweetLife Head Office and Wholesale Center branch.
  4. As a prerequisite activity, in the company to which you are signed in, be sure you have configured a withholding tax as described in Withholding Taxes: Implementation Activity.
  5. As a prerequisite activity, for the company to which you are signed in, be sure that you have prepared and released a tax report as described in Tax Report for VAT: Process Activity.
  6. As a prerequisite activity, be sure that you have created the FOREIGN tax zone on the Tax Zones (TX206000) form as described in Direct Tax Payment: To Create a Tax Bill for a Tax Agency.
  7. As a prerequisite activity, be sure that you have created the WITHHOLD tax category on the Tax Categories (TX205500) form as described in Withholding Taxes: Implementation Activity.

Step 1: Updating the Vendor's Settings

To update the tax zone of the vendor, do the following:

  1. Open the Vendors (AP303000) form.
  2. In the Vendor ID box, select MAPLELEAF.
  3. On the Purchase Settings tab, select FOREIGN in the Tax Zone box.
  4. On the form toolbar, click Save.

Step 2: Creating and Releasing an AP Bill

To create an AP bill and apply a withholding tax to it, do the following:

  1. On the Bills and Adjustments (AP301000) form, create a new record.
    Tip: To open the form for creating a new record, type the form ID in the Search box, and on the Search form, point at the form title and click New right of the title.
  2. In the Summary area, specify the following settings:
    • Type: Bill
    • Vendor: MAPLELEAF
    • Date: 1/31/2024 (inserted by default)
    • Post Period: 01-2024
    • Description: Consulting services
  3. On table toolbar of the Details tab, click Add Row and specify the following settings for the added row:
    • Branch: HEADOFFICE
    • Transaction Description: Consulting services
    • Ext. Cost: 500
    • Account: 81000
    • Tax Category: WITHHOLD (inserted by default)
  4. On the form toolbar, click Save.
  5. On the Taxes tab, review the tax that has been applied to the document.

    The taxable amount is equal to the Detail Total of the bill. The system has calculated the $75 withholding tax as 15% of the taxable amount, which is $500; the tax amount is already included in the amount of the bill.

  6. On the form toolbar, click Remove Hold, and then click Release to release the bill.
  7. On the Financial tab, click the Batch Nbr. link and on the Journal Transactions (GL301000) form, which opens, review the generated GL transaction.

    On release of the bill, the system generated the following entries:

    • The Accounts Payable account of the vendor (20000) is credited in the amount of the bill.
    • The Expenses account specified in the document line (81000) is debited in the amount of the bill.

    Notice that the tax amount has not yet been posted to the general ledger, because withholding taxes are not recognized on bills. They will be withheld from the payment amount on release of the payment for the bill.

Step 3: Creating a Payment for the Bill

To create a payment for the AP bill, do the following:

  1. While you are still on the Bills and Adjustments (AP301000) form with the bill opened, on the form toolbar, click Pay.

    The system opens the Checks and Payments (AP302000) form with the created payment. Notice that the bill is automatically added on the Documents to Apply tab.

  2. In the Summary area, specify the following settings for the payment:
    • Payment Method: WIRE
    • Cash Account: 10200WH
    • Application Date: 1/31/2024
    • Application Period: 01-2024
  3. On the form toolbar, click Save.
  4. Review the payment that you have created.

    The withholding tax amount specified in the With Tax. column on the Documents to Apply tab ($75) will be posted to the Tax Payable account and included in the tax report. This amount was copied from the bill; if needed, you can override it. The Payment Amount is the total of the bill minus the withholding tax. Thus, you have to pay $425 to the vendor, and the $75 tax amount is withheld from the payment and is later paid to the appropriate tax authority (the VATTAX agency).

  5. On the form toolbar, click Remove Hold, and then click Release to release the payment.
  6. On the Financial tab, click the Batch Nbr. link and on the Journal Transactions (GL301000) form, which is opened, review the generated GL transaction. On release of the payment, the system generated the following entries:
    • The company's checking account (102000) is credited in the amount to be paid to vendor (the bill total minus the withholding tax).
    • The Withholding Tax Payable account of the withholding tax (24210) is credited in the amount of the tax withheld from the payment that has to be paid to the tax agency.
    • The Accounts Payable account of the vendor (20000) is debited in the amount of the bill (the check amount plus the withholding tax amount), so that the bill becomes closed.

Step 4: Preparing a New Revision of the Tax Report

To prepare the second revision of the tax report for 01-2024, do the following:

  1. Open the Prepare Tax Report (TX501000) form.
  2. In the Summary area, specify the following settings:
    • Company: SWEETLIFE
    • Tax Agency: VATTAX
    • Tax Period: 01-2024
  3. Review the tax report preview for the 01-2024 period. The withholding tax amount to be paid is reported.
  4. On the form toolbar, click Prepare Tax Report. The Release Tax Report (TX502000) form opens.
  5. Review the prepared report. Notice that the report includes all the amounts that were processed in the 01-2024 period. The Tax Amount Payable line now includes the withholding tax to be paid. The Revision box shows the number of the prepared tax report revision (2). If needed, you can select a previous revision of the tax report and review it. You can also review only the difference between the current and previous revision. To do this, select the Show Difference check box.
  6. On the form toolbar, click Release to release the new revision of the prepared tax report.
  7. Review the AP Documents tab. The system has generated one more bill on paying the $75 withholding tax to the agency.