If you are using Xero then is a simple matter to set up a bank rule that calculates from your bank payment received the amount of contracting income, GST and tax withheld. Here is a link to adding a bank rule
Here is an example
You invoice your customer for $3,000 of contracting income with GST added of $450 and tax withheld of 25% $750. You receive $2,700 being $3,000 plus $450 less $750.
Calculate the tax withheld as a percentage of the payment received so in our example 750 divided by 2,700 = 27.78%. In the bank rule below the monthly contracting income is 127.78% of the net payment and the tax is negative (27.78%).
Apply the bank rule to the $2,700 received
The income, GST and tax are all calculated for you. There may be a variance of a cent or two due to rounding. If you click on view details you can see the detail of the transaction and you can edit the rounding variance if you want to.
If you would like us to assist with setting up your bank rule or any aspect of accounting for your contracting arrangements please get in touch.
Article by Avril Hillind