Topic: Payment Deductions - Voluntary
The ATO allows for the voluntary deduction of PAYG Withholding tax from contractors payments. If Voluntary PAYG Withholding Tax deductions are to be applied to Suppliers with an ABN and with GST applicable, then the PAYG deduction (PYG) could be used as distinct from the new Withholding Tax deduction (WHT). However, it would be preferable to create a new deduction (VDN) with the same codes as the PYG deduction, i.e. use the same GL account, Supplier and Job, and a new Cost Centre of VDN. The gross is reported at W1 and the tax at W2 on the BAS. The WHT deduction of 48.5% is applicable to non-ABN Suppliers where the gross is reported at G14 and the tax at W4 on the BAS.
To use Voluntary Pay Deductions in the system do the following:
| • | Create a GL Liability account e.g. PAYG Tax Clearing 2.3001, if it does not already exist |
| • | Create a Cost Centre code e.g. VDN with the name Voluntary Tax Deduction and link to GL 2.3001 |
| • | Go to the Suppliers screen and Pay Deductions |
| • | Create a deduction with a code of VDN (the system usually creates this automatically and therefore may already exist) and nominate the new GL account 2.3001, Tax Supplier, Job and Cost Centre VDN |
| • | Exit from Pay Deductions and select the Supplier to apply the new Voluntary deduction. |
| • | Delete the old “PPS;” code from the Pay Deductions if it exists |
| • | Go into the tab labelled “VD” |
| • | Tick the Voluntary Pay Deductions box and enter the desired percentage rate for the deduction |
| • | Click the EDIT button and the system will automatically display the Pay Deductions screen with the VDN deduction highlighted. Select and save any other deductions and oncosts relating to this Supplier. |
| • | Exit from the Pay Deductions screen and click on the Details label. The new VDN deduction code will appear in the Pay Deductions box of the Suppliers Details screen. |
| • | When paying the Supplier, the deduction will appear in the Payment screen with the amount calculated based on the percentage of the invoice value (GST inclusive). A negative invoice is generated by the system against the Supplier and a positive invoice payable to the ATO. The GL account for the Voluntary tax deducted should be a nil balance. |
End of Document