2% Retention
Elsullastres
Member Posts: 3
Hi, I need to add 2% retention to my invoices. This is subtracted from the final amount owed.
Please can you let me know how I can do so, thanks.
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Comments
Hey @Elsullastres, it's not possible to add percentage-based item prices on an invoice, so you'd need to calculate it yourself and add a negatively priced item as a discount or sorts. Just to get a better understanding of what you're looking for, what is this retention discount? Is it something you apply for repeat customers after a certain number of subscriptions/renewals? I've never had someone ask about this type of invoicing option, so I'm curious to understand the way you'd be using it. Feel free to share some more details about this!
Would I be correct in thinking that when your customer receives an invoice from you they automatically compute a 2% deduction before settling your bill? If you are trying to work out how much you can up your charges so that the retention leaves you with what you wanted in the first place you do indeed need to manually gross up your intended invoice value, but not by 2%. Use instead the calculation of 100/08 x original gross eg if you wanted to receive £1000 you would invoice for £1020.41, not £1020. Work it backwards - 2% of £1020 = £20.40, 2% of £1020.41 = £20.41
If you are UK based and working in the construction industry, where this is a pretty standard deduction, what you should actually be doing is issuing an invoice dated for the amount you receive on the date you receive it, having preceded that with a request for payment charge. Don't forget too that retentions are by nature a temporary hold on money to allow for any snagging issues and ultimately are refundable to you at a future date (usually at least 12 months), though it is up to you to keep track of the retentions and chase them up. For UK VAT & Tax the retentions only count as income when received, so it is important that you raise invoices in the way I've just outlined, otherwise you'll be paying taxes on money that, ultimately, you might not receive.
Hi Andrew, thanks for your answer. However, I didn't explain well. I am in Spain. Here, we put a 2% withholding tax on every invoice. The software I am currently using has an option for retention. I'm finding that this is rare, most software hasn't, and the withholding tax is used in 26 countries I think...
@Elsullastres
I think the only work around you could do perhaps was to create a discount line on your invoice that you describe as withholding tax and that you calculate yourself and enter as a negative value.
I'm surprised you have to do this on all your invoices however, I'm pretty sure inter EU trading would be exempted from this? The only time I have encountered Spanish withholding tax has been for non Spanish landlords where their tenants/agents withhold the tax at source on rental income, though again this can be avoided if the correct non resident landlord paperwork has been completed and filed with the tax authorities.
Regards