Accounting & Management
Topic 1: Common Accounting and Taxation Mistakes Made by Companies
While Singapore has a relatively straightforward and highly efficient annual and tax returns filing and payment systems, many companies still make mistakes. This is particularly true amongst SMEs, which usually lack the resources to ensure a proper filing process. In this article, we shall explore some of the common accounting and taxation mistakes made by companies in Singapore.
A) Understatement of Income
As all earnings received by businesses should be properly accounted for, companies should keep tab of their income by issuing serially numbered invoices for all goods sold or services rendered. These receipts, supported by systematic invoicing, should be properly accounted when preparing your books and accounts. Failure to do so would mean that the company has understated its income, which is an offence in the eyes of the law.
B) Claiming Deductions for Non-deductible Expenses
Companies can only claim deduction on expenses that are incurred for the business. Non-deductible expenses, such as directors’ private expenses on entertainment, vacation and other personal purposes, should be excluded from the company’s claims in the Form C-S/C. Other examples of non-deductible expenses include the petrol, insurance, repair and maintenance, parking fees, ERP charges, hire purchase interest, etc. of private-plate cars (i.e. non-Q plate cars) and business service passenger vehicles (Q-plate cars). Even if such expenses are incurred in the course of the business, they are considered non-deductibles.
C) Claims of Remuneration to Related Parties
If you have related parties, such as the directors’ parents, spouses, children and siblings, working in the company, the remuneration offered to them must commensurate with the level of services rendered and comparable to an independent employee with the same qualifications and experience. Some businesses pay substantial and unjustifiable salaries to these related parties. In other instances, the related parties do not even work in the company. Such practices may result in tax queries.
D) Incorrect Claim of Expenses
Another common mistake made by businesses is the practice of claiming purchases, expenses or cost of sales based only on estimates. Estimated purchases and expenses without valid basis or proper support of documents are not acceptable. Any claims for purchases and expenses must be based on the actual amount incurred, with supporting receipts and invoices. Similarly, the cost of sales must be based on actual closing stock value instead of estimation. This means that the company must perform stock-take at the close of each accounting period to determine its closing stock value.
Incorrect claim of expenses may also be the result of incomplete records. For example, when claiming public transport and entertainment expenses, it must be supported with proper receipts and complete records.
E) Failure to Maintain Business Records for Five Years
There is a misconception amongst many businesses that they can discard their records once the Notice of Assessment is received. This is not true. Businesses are required to keep and retain sufficient records for five years, regardless of whether or not an assessment has been raised. The Comptroller has the rights to request for these documents in the course of their audits.