Impact of Poor Bookkeeping on Taxes

Maintaining accounting records and compliance with the regulatory & tax laws are two vital ingredients to the success of any business venture. In filing tax returns, good record keeping is key. If you have insufficient records on hand, or the accounting record is not complete, there is not much your tax accountant can do to save you from tax lability and heavy penalties. So, the important thing is to keep all the receipts of your expenses that you spent your money on. If you bought something over the Internet keep your supplier’s invoices. Also make sure that you keep copies of invoices you give to your customers and bank statements. If you want to make sure your accounting fee is minimised don’t stick it on a shoebox and give all your records to your accountant at least a month before due date for filing of tax return.

Good accounting records would help the taxpayer to claim and utilise tax credits and deductions available to him or her in respective tax laws. If tax litigation proceedings are started against the taxpayer, and he or she will have to appeal before any appellate forum or court of law, and might lose the case due to poor record keeping.

Same thing happened with a married couple in 2009, who established a limited liability company but had earned no revenue for many years. The court disallowed expenses with respect to:

• Salary paid to employees – although they had submitted wage and tax statements along with required forms, yet the deduction against those expenses were disallowed because they did not have sufficient and appropriate evidence to prove that they actually paid those wages or the work was performed for the company.
• Vehicle running and maintenance expenses – because the couple did not keep fuel receipts and recorded the time and mileage of car used for business purposes.
• Utility expense – the couple had its office inside their residential home but the registered office address with regulatory authorities was of another address.
• Other expenses – owing to the lack of documentary evidence and because those were claimed in wrong tax year.

In its decision, the court declared the couple negligent of keeping correct accounting records and not taking reasonable care in maintaining their books of accounts.

The above caselaw can be a good lesson for business owners who are negligent of their duties about record-keeping. Hence, it is always advisable for taxpayers to:

• Keep separate record of business and personal expenses.
• Always include the information that has sufficient and appropriate documentary evidence at the backend. Expenses lacking evidence will be disallowed by the tax authorities.
• Ensure a proper record of mileage, time and place of vehicle used for official purposes. Maintain a log book, trip sheets and statement of expenses etc. Also keep receipts of all expenditures made relating to the use of motor vehicles.
• If you have incurred expenses on meal and entertainment, keep all the documentation with approval from board of directors.

If you are still unsure about the extent of record-keeping for tax return purposes, contact a qualified bookkeeper or tax accountant or engage bookkeping services in Singapore.