Retentions Tax (Withholding Tax)

CAPITAL Office fully supports Retention System (withholding) tax calculations and management for customer sales and supplier invoices.

CAPITAL Office will:

• Allow you to assign a variable percentage rate for customers or suppliers that incur Retention System Tax (Retention).

• Automatically calculate the amount of Retention. applicable, with the option for the user to override this amount.

• Automatically generate Retention. adjustment transactions during payment entry and allocation. CAPITAL does its best to ratio the amount of Retention. you specify according to the invoices and other transactions you pay.

• Automatically rounds down Retention. amounts to the nearest whole dollar and ignores amounts less than $1.00.

• Warns you if it is unable to allocate Retention to the transactions you specify due to over-allocations, etc.

• Transfers/updates either your expense accounts (optional without general ledger) or your general ledger balances with the amount of Retention collected or paid out.

• Produces a comprehensive Retention report to assist you in meeting your tax obligations. The report can be produced for customer or supplier related transactions.

Setting Up Retention

To set-up the Retention management system in CAPITAL you must run INSTALLATION Workshop program. Select from the menu Install and then Taxes, and then move to Retentions.

CAPITAL has eight user defined transaction types. One of these must be reserved for Retention adjustment/transaction tracking. CAPITAL will automatically generate this transaction when necessary, i.e., when entering a payment that has a Retention tax component, or Retention. may be entered or adjusted manually by the user.

A unique transaction number sequence can be assigned to Retention. related adjustment transactions, as well as "expense" or general ledger account codes.

General Ledger Users

You should establish a chart of accounts code for tax paid collected by your customers (if applicable) if you are involved in sales related Retention. transactions, and/or another for tax collected on behalf of your suppliers.

Tax collected on behalf of your suppliers will need to be forwarded to the Taxation Department at some point, so this account is normally entered as a liability. Sales related Retention. is tax that has been "pre-paid" to the Taxation Department and is normally entered as an asset. You should do this before you set-up Retention Processing in CAPITAL Office.

Note: If you are not running the CAPITAL GL Controller (the general ledger) then you can obtain the information you need by running the Retentions Tax Report.

INSTALLATION Workshop Settings

To create a Retention adjustment transaction and set-up the Retention management system:

1.  Start INSTALLATION Workshop.

2.  Select from the pull down menu Install, Taxes and then Retentions.

3.  If you are running the general ledger, you should enter your supplier account code in the Supplier expense code field. Non-general ledger users generally leave this blank.

4.  Repeat step 3, but for your customer/sales related Retention transactions, if applicable, when prompted for Customer expense code.

 Now enter the Retention transaction type number. This is a number between 2-8, excluding 6 or any transaction number that has been reserved as a payment. (Retention adjustment transactions cannot also be payment type transactions.)
It is recommended that transaction types 2 and 3 be reserved for use as credits, discounts and adjustments respectively.

Once you have selected an appropriate transaction type you should also go to Invoicing Defaults (select from the Install pull-down menu also) and change the transaction description so as to indicate that it reserved for Retention use. For example, if you have decided to use transaction type "5" as a Retention transaction, you should also change the transaction description from Discount to Retention adjustment.

If the transaction type you selected is being used for some other purpose, ensure that you disable its alternate use. For example, transaction type "5" is by default reserved for discounts, and type "7" for lay-bys. To disable one of these uses, go to the Invoicing installation settings and ensure that the transaction number has not been assigned to any entry under Default Transaction Settings.

Next Customer Number

Once you are happy with your transaction type number selection you will be prompted to enter the Next Customer Number. This is the next Retention transaction/audit number to have CAPITAL automatically issue for customer account transactions. This will be the transaction number sequence of the transaction type you have specified.

For example, if you decide to use transaction type "5", this is the next transaction number that will be issued for transaction type "5". It is suggested that you use a different number sequence from your regular invoice numbers, i.e., Retention1000.

Next Supplier Number

This is the next Retention transaction/audit number to have CAPITAL automatically issue for supplier account transactions.

Remember: Once you have completed the above steps, don’t forget to change the transaction type description to Retention Adjustment.

Automatic Retention Transactions

Retention. related transactions are entered under Customer or Supplier entries, where cheques and payments are normally entered. CAPITAL will determine if the transaction needs to deal with Retention if a Retention rate has been assigned to the applicable account. The Retention rate can be entered as a percentage (typically 1-20%) under the Customer Account or Supplier Account Record in the Retention rate field.

Retention transactions can be entered manually or calculated automatically by CAPITAL. It is quicker to allow CAPITAL to automatically issue/allocate Retention when appropriate. This is what is discussed first.

During payment entry, if Retention might be applicable, additional fields are displayed prompting you to confirm the Retention amount.

The actual rate will vary, depending on the rate that applies to the customer or supplier. (The displayed rate is for information purposes only.) The Amount field is calculated based on the payment total multiplied by the percentage rate. For example, if the total payment amount entered was $100.00 and the Retention rate was 20% then the Retention Amount field would be $20.00.

You can adjust/override this if necessary. Retention amounts are always entered as positive numbers. CAPITAL automatically rounds down the contents of the Amount field to the nearest whole dollar. Any Retention amount less than $1 is ignored.

The Retention No is the next Retention transaction number that will be assigned to the Retention adjustment transaction. This is automatically issued by CAPITAL.

The field Of Payment refers to the payment transaction/audit number that the related Retention adjustment transaction will refer to. By default this will always be the current payment transaction number and does not normally need to be changed.

CAPITAL will create two transactions--your original payment, and the Retention adjustment transaction. The correct proportion of each will be allocated to the invoice and/or other transactions you select.

Remember: You should enter the total amount of the payment including Retention. CAPITAL will reduce the payment total by the amount of Retention entered.

Customer Entries - If you have the Recording Payment Methods feature turned on, i.e., you are being prompted for cash/cheque/credit cards, etc., details, then the total amount for these must add up to the payment amount, less the Retention amount.

For example, if you are entering a customer payment, and the transaction total is $500, and $50 of this is allocated for Retention, then the total of your cash/cheques, etc., must add up to $450. (This is the amount of money you actually received.) In other words:

Transaction amount - Retention amount = money received/banked.

Manual Retention Transactions

It is sometimes convenient to manually adjust or input Retention related transactions. This may be because a credit note/adjustment note needs to be issued after payment has been received, and for other reasons.

Retention adjustment transactions are entered just like regular adjustments. Be sure to select the "Retention adjustment" type number, not your standard adjustment type number. It is also important that you refer to the payment that is to be affected as a result of this adjustment in the Of Payment field.

This information is important as it is used by your Retentions Report.