Withholding VAT

Withholding VAT is an indirect tax where the customer deducts a portion of VAT from the payment due to their vendors. The withheld amount is then paid to a withholding agent, who submits it to the Kenya Revenue Authority (KRA) on an accrual basis.

In Zoho Books, you can create transactions, apply withholding VAT to them, and record payment for the remaining amount. Once the withheld VAT is paid to the KRA, you can also record payment for it in the respective transaction’s page. This ensures that your business stays compliant with KRA’s tax regulations.

Scenario: Patricia buys office supplies from a vendor for KES 10,000, including KES 1,600 VAT. She withholds 2% of the VAT (KES 200) and pays it to her withholding agent. The agent pays it directly to the Kenya Revenue Authority (KRA). In Zoho Books, the vendor creates a transaction for KES 11,600, applies the withholding VAT, and records the remaining payment of KES 11,400. After the withheld amount (KES 200) is paid to the KRA, the vendor records this withheld VAT again with the same transaction, ensuring tax compliance.

Enable Withholding VAT

To enable withholding VAT in your Zoho Books organization:

Insight: If you are a withholding agent appointed by the KRA, select Vendors. If any of your customers is a withholding agent, select Customers. If both you and your customers are withholding agents, select Customers and Vendors. This allows you to accurately track and record VAT payments in Zoho Books.

You can now withhold VAT in invoices and bills in your Zoho Books organization.

Create Customers

To create customers for whom you want to withhold VAT:

The customer will be created.

Similarly, you can also create vendors for whom you want to withhold VAT.

Record Transactions

Create Invoices

When you send an invoice, your customer will deduct a portion of VAT and pay you the remaining amount. If they’re a withholding agent, they’ll pay the withheld VAT directly to the KRA; otherwise, they’ll pay it through their agent. Once the VAT is paid, you’ll receive an email with the payment details, and you can record it in the transaction.

To create an invoice:

The invoice will be created and sent to your customer. They will withhold the VAT, pay you the remaining amount, and submit the withheld VAT to the KRA through their agent. Once paid, you’ll receive an email with the payment details, for which you can record the invoice payment. Here’s how:

Scenario: Patricia, a withholding agent, purchases goods for KES 100 and receives an invoice for KES 116, which includes KES 16 in VAT. She withholds VAT (KES 2) and pays the vendor KES 114. Patricia then pays the withheld VAT directly to the KRA. The vendor receives an email with the withholding VAT certificate number, and records payment for it.

The payment will be recorded for the remaining invoice amount.

View Customer Statements

Once you’ve recorded payment for your customer’s invoices, you can view the customer’s statement, which also includes the withholding VAT amount. To view the customer statement:

You can view the statements for the transactions, including payments recorded, payments received and the VAT amount withheld by the customer.

Similarly, you can also view statements for your vendors in the Vendors module.

Create Bills

If you are a withholding agent, you can create a bill for your vendor in Zoho Books and apply the withholding VAT. When you record payment for the bill, ensure that you record payment for the amount excluding the withholding VAT. Next, pay the withholding VAT amount directly to the KRA. On payment, your vendor will receive an email with the payment details, which they can record for tax purposes.

To create a bill:

The bill is created, and you can record payment for the bill amount, excluding the withholding VAT. Here’s how:

The payment will be recorded for the remaining bill amount. Once you pay the withheld amount to the KRA, your vendor will receive an email with the respective payment details.

View Reports

To view reports for the transactions where withholding VAT is applied:

The Box 18 will display the total VAT withheld from sales transactions. Click the box to view the list of transactions where withholding VAT is applied.

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