Common Mistakes Made by Companies

IRAS has observed that the commonly made mistakes by companies are:

1.   Understatement of income

• Businesses should properly account for all the earnings and invoices issued for goods sold or services rendered. Omission of particular receipts or invoices issued amounts to an understatement of income, which is an offence.
• Taxpayers should issue serially numbered invoices in respect of goods sold or services rendered. These receipts supported by proper invoicing should be properly accounted when preparing accounts.

2.   Claiming Deductions for Non-deductible Expenses

• Expenses not incurred for the business such as directors’ private expenses on entertainment, vacation and personal purposes. Businesses should segregate private expenses and exclude them from their claims in the Form C/ Form C-S. 
• Claims of motor vehicle expenses in respect of private-plate cars (i.e. non-Q plate cars) and business service passenger vehicles (Q-plate cars) e.g. petrol, insurance, repair & maintenance, parking fees, ERP charges, hire purchase interest, etc. Such expenses are not deductible even if they are incurred in the course of business.

      For a summary of the above, please refer to this Checklist (65KB).

3.   Claims of remuneration to related parties

• Remuneration to related parties (i.e. the directors’ parents, spouses, children and siblings) are usually substantial and do not commensurate with the level of services rendered by the recipients. In some instances, the related parties are not even working in the company. For tax deduction purposes, the remuneration paid should be a reasonable amount having regard to the services performed by the related parties as compared to an independent employee with the same qualifications and experience performing the same services.          

4.   Incorrect claim of expenses

• Claiming of purchases/expenses based on estimations:
  • Claims of purchases and expenses should be based on actual amount incurred, with supporting receipts & invoice. Estimated purchases and expenses without valid basis or proper support of documents are not acceptable.
• Keeping of incomplete records:
  • Claims on public transport & entertainment should be supported with complete records and proper receipts.
• Failure to maintain business records for a period of 5 years¹:
  • Some taxpayers have failed to keep and retain sufficient records to enable us to ascertain their income and allowable business expenses. 
  • Some have the misconception that they do not need to keep records or could discard their records once a Notice of Assessment is received. This is incorrect.
  • Records should be retained for the requisite period of 5 years whether or not an assessment has been raised.  The Comptroller may request for these documents in the course of audits.

Taxpayers are reminded to declare their income and expenses accurately. Under the law, IRAS may issue penalties for the filing of a wrong return.