Withholding tax

Withholding tax is deducted at source. Your customer pays you less than the invoice, keeps the difference, and remits it to the authority against your account. Or you do the same to a supplier.

Upscale handles both directions natively, on ordinary invoices and payments, with no workaround.

When a customer withholds from you

You invoice 100,000. Your customer pays 95,000 and remits 5,000 to KRA on your behalf.

The invoice is fully settled. You have not taken a 5,000 loss and you have not given a discount: you have received 5,000 of value in the form of tax already paid on your account.

Record the payment as 95,000 with 5,000 withheld. Upscale:

• clears the full 100,000 from what the customer owes
• increases your bank by 95,000
• records 5,000 as Withholding Tax Receivable, an asset, because it is recoverable against what you owe

The customer's balance goes to zero, which is the point. Recording this as a 95,000 payment with a 5,000 write off would understate your income and leave you unable to claim the credit.

The certificate reference can be recorded against the payment, so when you claim the credit you can find the supporting document.

When you withhold from a supplier

The same thing in reverse. You are billed 100,000, you pay the supplier 95,000, and you owe KRA 5,000.

Upscale clears the full 100,000 from what you owe the supplier and records 5,000 as Withholding Tax Payable, a liability, until you remit it.

Remitting is recorded like any other tax payment. See Tax Payments and Filing.

Withholding VAT

Withholding VAT works the same way: an appointed withholding agent keeps part of the VAT on your invoice and remits it directly.

It is tracked separately from income tax withholding, because the two are claimed differently and on different returns.

On your reports

• Withholding Tax Receivable appears as a current asset. It is money you have effectively already paid.
• Withholding Tax Payable appears as a current liability until you remit it.
• The tax report shows tax withheld on your behalf as its own line, so it is not confused with input tax on purchases.
• Ageing is unaffected, because the invoice was settled in full. This is the practical test of whether withholding is being handled correctly: a customer who has paid should show nothing outstanding.

Why this is worth checking in any system

The common workaround, in software that does not support withholding, is to record the short payment and write the rest off. That produces three wrong outcomes at once: understated income, a lost tax credit, and a receivables ledger that never quite clears.

If you have been doing that, the amounts are usually recoverable. Talk to your accountant before correcting historical periods.