As a start-up or an SME, your company may probably lack the resources to ensure that the filing of annual returns and accounting systems and practices are always kept aligned with what’s expected of you by the statutory laws. And even though Singapore has relatively straightforward and highly efficient annual filing and payment systems, many companies still make mistakes along the way. (Please read our articles Filing Of Annual Returns – What Do I Need To Do and All You Need To Know About Filing Annual Corporate Income Tax Returns for more information about annual filings.)

So, what are the common accounting and taxation mistakes made by companies in Singapore? Let’s take a look at some of them here.

Copywriting for common accounting and taxation mistakes

1. Invoices That Aren’t Serially Numbered

All earnings received by businesses should be properly accounted for. To do so, companies should track their sales or revenue by issuing invoices that are serially numbered for all goods sold or services provided for every financial year. Such systematic invoicing allows you to account for every income transaction when preparing your books and accounts.

2. Claiming Non-deductible Expenses

Your company can only claim deductions on expenses that are incurred for the production of the company income. Expenses, such as private entertainment, holiday trips or buying a family car, are considered non-deductible expenses and should be excluded from your company’s claims in the Form C-S/C (see article All You Need To Know About Filing Annual Corporate Income Tax Returns).

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.

For more information on what’s deductible and what’s not, please read our article Your Company’s Deductible And Non-deductible Expenses.

3. 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 a valid basis or proper support of documents generally are not acceptable for the Singapore Accounting Practice (or most accounting practices). Claims must be based on the actual amount incurred, with supporting receipts and invoices (that’s why keeping receipts are so important!). Similarly, the cost of sales must be based on the actual closing inventory value instead of estimation. This means that your company needs to perform stock-take at the close of each accounting period to determine its closing inventory value.

4. Confusing Profits With Cash Flow

They may mean the same thing to you, but in accounting, there’s a difference between profit and cash flow. Cash flow is the amount of money flowing into or out of business. Cash inflow means cash generated from sales flowing into the bank account while cash outflow is usually in the form of payment for expenses such as rent, salary, etc. Profit, on the other hand, is what remains from revenue after deducting expense.

Let’s look at an example. Suppose you paid for $10,000 worth of inventory from a supplier in January. You sold all inventory for $18,000 in February, but only managed to receive payment in March. In February, your profit is $8,000 ($18,000 less $10,000) but your cash flow is negative $10,000. Why so? This is because you have paid your supplier $10,000, but you have yet to collect any amount from your customers. In March, you will have a positive cash flow of $18,000 while your books will record nothing for profit.

See the difference?

5. Paying Remuneration To Family Members

If you have family members like parents, spouse, children or siblings working in your company, you can offer remunerations to them in return for their employment. However, you need to ensure that you are paying them a reasonable salary that is comparable to what you would pay an independent employee with the same qualifications and experience. If you pay substantial or unjustifiable salaries to your family members or if you pay family members who don’t even work in the company, your company may be subject to tax queries.

6. Failure To Keep Business Records For Five Years

Some people think that once they have filed their Annual Returns and Corporate Tax Returns, they can discard their company records. This is not true! All businesses must 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.

About the Writer:

Judy Tham is a writer and founder of One Elephant, a copywriting firm in Singapore. She co-authored Are You Brand Dead?, one of the few books on branding in Asia that focuses on SMEs.