Releasing Retainage on Purchase Orders with Taxes
When you match purchase orders and create vouchers, you might select to withhold a portion of the payment to the supplier until the completion of the contract or service, or until you receive all of the items on the order. The amount that you withhold is called a retainage. If the purchase order does not have valued-added taxes (VAT) applied (tax explanation code V or C), the system automatically calculates and applies the tax amount based on the entire amount of the voucher at the time that the voucher is matched. For example, if the amount of the purchase order is 1,000, but 10 percent is retained, the system calculates taxes for the entire amount (1,000).
However, if the purchase order has VAT taxes applied (tax explanation code is V or C), you can specify whether to apply taxes to the entire amount of the voucher or for the amount of the voucher less the amount retained. The Taxes processing option, on the Retainage tab, for the Voucher Match (P4314) program specifies how the system applies taxes. If you enter 1 in the processing option (apply to retained amount), the system defers taxes on the retained amount until the retainage is released. For example, if you enter a purchase order for 1,000 and retain 10 percent (100), then when you match the voucher, the system calculates tax based on 900 (1,000 - 100), instead of 1,000. Later, when you release the retainage, the system calculates taxes on the remaining amount (100).