If you’re running a business in Sri Lanka, keeping track of PAYE, VAT, and Withholding Tax (WHT) is essential — not just for compliance, but also for avoiding penalties from the Inland Revenue Department (IRD).

Luckily, tools like QuickBooks Online can help automate and simplify this process.

In this guide, we’ll show you how to use QuickBooks to accurately manage:

• PAYE (Pay-As-You-Earn) for employees
• VAT (Value Added Tax) for registered businesses
• WHT (Withholding Tax) on payments to suppliers and professionals

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✅ Step 1: Set Up Taxes Properly in QuickBooks

Before anything else, configure your tax settings according to Sri Lankan requirements.

How to Do It:

1. Go to Taxes > Sales Tax (for VAT)
2. Create custom Tax Agencies for:
   • IRD (PAYE)
   • VAT Department
   • WHT (use a manual liability account)
3. Create appropriate liability accounts in the Chart of Accounts:
   • PAYE Payable
   • VAT Payable
   • WHT Payable

🔍 Tip: Use the “Other Current Liabilities” type for these accounts.

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💰 Step 2: Track PAYE for Employees

PAYE is deducted monthly from salaries of employees based on Sri Lanka’s personal income tax slabs.

How to Track PAYE in QuickBooks:

• Use Payroll features (if enabled) or record payroll manually:
  1. Create a Journal Entry for each payroll run.
  2. Debit Salary Expense
  3. Credit PAYE Payable, EPF/ETF Payable, and Net Salary (Bank)

Example:

javaCopyEditSalary Expense (Dr)         Rs. 150,000
    PAYE Payable (Cr)       Rs. 18,000
    ETF/EPF (Cr)            Rs. 12,000
    Bank - Salary (Cr)      Rs. 120,000

• At month-end, make a payment to IRD using “Pay Taxes” or a journal entry.

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🧾 Step 3: Manage VAT Returns (If VAT-Registered)

If your business exceeds the VAT threshold (Rs. 80M annually), you must collect and remit VAT.

In QuickBooks:

• Set up VAT rates: e.g., 15%, 0% (export), Exempt
• Assign VAT to:
  • Products/services you sell
  • Bills/invoices received
• Use Tax Center to review your VAT liability

📤 QuickBooks will automatically calculate Output VAT (on sales) and Input VAT (on purchases)

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💼 Step 4: Record Withholding Tax (WHT)

In Sri Lanka, WHT applies to certain payments like rent, consultancy, interest, etc.

Manual Tracking (No default WHT feature in QBO):

1. When making a payment (e.g., professional fee), split the transaction:
   • Debit full expense
   • Credit Bank (actual paid)
   • Credit WHT Payable (amount withheld)

Example:

scssCopyEditConsultancy Expense (Dr)    Rs. 100,000
    WHT Payable (Cr)        Rs. 5,000
    Bank (Cr)               Rs. 95,000

2. Pay WHT to IRD monthly and offset from WHT Payable

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📅 Step 5: Use Reports to Stay Compliant

QuickBooks helps you generate:

• Tax liability reports (VAT)
• Payroll summaries (for PAYE)
• Custom liability reports (for WHT)

Regularly export and reconcile with IRD returns.

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🎯 Final Tips

• Always reconcile your tax liability accounts monthly
• Maintain backup copies of IRN forms, T-10s, and VAT returns
• Work with your accountant or tax advisor to ensure compliance

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📌 Conclusion

QuickBooks can be a powerful tool for Sri Lankan businesses to track and manage PAYE, VAT, and WHT efficiently. By customizing accounts and workflows, you’ll reduce errors, avoid penalties, and stay compliant with the IRD.

Want help setting this up? Contact us at TaxCalculator.lk for consulting or QuickBooks integration support