Singapore Taxation Services for Small Businesses: Tax Mistakes to Avoid
Mistake 1: Keeping Poor Records
Bad records management can have many negative consequences. It is necessary to track everything accurately in your business in order to keep your taxes and budget concerns in order. No matter how big or small your company, you need to have records system in place. Are you struggling to make and stick to a budget? Consider hiring the services of a tax consultant Singapore.
If you do not keep accurate records, you can end up facing the following consequences:
- You will not have a reliable record of your past to help you make day to day business decisions.
- Exhausting your budget and spending more than your incoming funds. This can result in problems with suppliers, payroll, utilities etc.
- You will likely miss deadlines, leading to late submissions and potential penalties.
- An inability to supply information to your bank or mortgage lender on time, resulting in you not getting necessary financial help when needed.
- A stressful situation may get very stressful tax submission dates draw near. Poor records can result in underpaying or overpaying your taxes.
- Too much time spent locating misplaced files. You will upset and disappoint your clients if you cannot access their information in a timely manner.
Mistake 2: Forgetting to Submit Estimated Chargeable Income
You must file your Estimated Chargeable Income (ECI) within three months of the end of the financial year (this is unless you have an ECI Waiver concession). If you miss the due date, the IRAS will likely issue you with a Notice of Assessment (NOA) that has been based your company's income. Experts in taxation services Singapore can help you make sense of this Notice if you are still confused.
Your company must pay the estimated tax by the due date stated on the NOA in order to avoid late penalties and enforcement actions. This is imperative, even if you object to the IRAS' estimated assessment.
A variety of penalties can be levied against business owners who don’t file their ECI properly. When the company fails to file the ECI within the period of 3 months, they will receive a NOA from the IRAS. This NOA should be considered the final assessment. If you disagree with this notice, you have one month to submit the complaint forms via MyTax portal. You can also send a written application to the IRAS directly.
Mistake 3: Failing to Pay Your Small Business Taxes on Time
Taxpayers must pay the taxes that they owe within 30 days from the date of the Notice of Assessment (NOA).
If you neglect to make this payment by the specified due date, you will be levied with a 5% penalty (and potentially with an additional 1% penalty) on all of your unpaid tax.
If your company has tried to make a GIRO deduction and you have been denied, you can have your ECI installment plan cancelled, and you might be levied with a 5% on the overdue tax. An unsuccessful GIRO deduction may be due to insufficient funds in your bank account, or due to a deduction amount that is higher than the limit set by the company. In such instances, the IRAS will send a Demand note and a GIRO cancellation letter to inform the company that the GIRO plan has been cancelled. The company must pay the full outstanding tax and all penalties by the Demand Note due date.
The IRAS is within their rights to do the following:
- Issue you with a Notice of Assessment. If this happens, you will have to pay all of your tax arrears within 1 month
- They may impose fines and penalties on you for not filing on time
- They can issue you with notices and summons
- They might summon the ) to court. In this situation, the penalty can increase to twice the tax amount assessed – this can cost you a lot of money and affect your bottom line.
Mistake 4: Unable to Differentiate Allowable and Disallowable Business Expenses
Business expenses are defined as the costs incurred over the course of running your business. You can only deduct allowable business expenses – do not try to deduct anything else.
However, many business owners confuse their business expenses with their personal and private expenses, a mistake that results in them claiming everything as deductible expenses. The IRAS audits tax returns and imposes penalties when there are errors, omissions and discrepancies for submission of incorrect returns. Confused? Seek the help of an expert in taxation services in Singapore to help you with any of these expense differences.
Mistake 4: Improperly Deducting Startup Costs
Generally, the expenses incurred prior to the commencement of business are not tax deductible. Deductible expenses are only those that would have been allowed if incurred after the business began operations. A tax consultants in Singapore can always help you to determine which deductions are allowed in your specific case.
Mistake 5: Dipping Into Your Employee Withholding Fund
When short on cash, it's often tempting for small business owners to dip into their employee withholding funds. Some business owners think that this money belongs to their business, and they might feel free to use it. However, it isn't considered your money. If your use any money from the withholding fund, you are personally liable and may face potential penalties. These funds must be held in trust until tax clearance is given or 30 days after the IRAS has been notified, whichever comes first.
Mistake 6: Classifying Employees as Independent Contractors
If an individual is treated as an independent contractor and later found to be an employee the potential liabilities and penalties are significant. Each working relationship should be thoroughly researched and analyzed before it is established, and always recorded correctly.
Mistake 7: Forgetting to Claim the Home Office Deduction
Before you decide to claim home office deductions, it is very important for any business owner to understand all rules and regulations in order to avoid the negative consequences of incorrect claims at the later stage. Remember – never hesitate to contact a tax consultant in Singapore if you are unsure about any of the information listed above.