WHAT TO DO! VAT AND WHT INVOICE DEDUCTIONS - PRACTICAL OVERVIEW

Recently, we received emails from some of our readers on difficulties on proper withholding tax and Value added tax deductions when paying their vendors invoices. Don’t be disappointed readers, countless numbers of accountant and professionals get CONFUSED in the process and that is why Tax Consultant is needed to support in small and large business tax administration.

If you agree with me, most businesses often misinterpret tax related matters and everyone at one point; call, research or meets experts or friends to discuss it. 

This article will give a practical expalnation on how to respond to invoices receives from vendors and how to remit to the proper tax body.

The illustration above is a sample fo a typical invoice; the TAX section is the Value Added Tax (VAT)  which is calculated as 5% of the allowable input. VAT is a statutory deductions which must be made on all vatables items (see VAT Acts sections for standard rate, VAT deduction at source , zero rated goods & services etc.).

Upon receiving this invoice from the vendor, the accounts department charges Withholding Tax of 5% on the input value and remit to the government agencies (State Board of Internal revenue services for enterprise and business names; and Federal Inland revenue services (FIRS) for Limited registered companies.) Upon remittance, a WHT credit note will be issued and it can be use to off-set future company liabilities.

BREAK-DOWN OF PAYMENT (VAT DEDUCTION AT SOURCE)

                      ₦

Invoice amount                        –     20,000.00

Less FIRS    (VAT)                      –      1,000.00 (See Section 13(2) of VAT Acts to understands who can deducts VAT at source) on their incoming invoices.

Less FIRS or LIRS(WHT)           –      1,000.00

Grand Total                               –      18,000.00

Note: See Section 78 - 81 of the Company Income Tax Acts (CITA) to understand Withholding charges or rates on all business dealings.

BREAK-DOWN OF PAYMENT

                      ₦

Invoice amount                        –     20,000.00

Plus VAT                                     -       1,000.00

Less FIRS or LIRS(WHT)           –      1,000.00

Grand Total                               –      20,000.00

Hope this clarifies this issue once and for all? If you still need further explanation, hit the comment section and a member of our team will be ready to respond.

Click here to read on HOW TO CALCULATE PAYE YOURSELF