Under the Self-Assessment System (SAS), which was adopted almost 20 years in Malaysia, tax returns submitted are only considered assessments, and the Inland Revenue Board of Malaysia (IRB) would not inspect or issue any official assessment. Once in a few years, IRB would carry out tax audit as routine enforcement to check that the tax returns submitted are in accordance with the requirements of the tax legislation.
Under such a self-assessment system, taxpayers bear greater responsibility where accurate and truthful records due for audit are concerned. Therefore, having a reliable and experienced Malaysia Accounting Firm to assist you in all your financial and tax matters is an invaluable business decision make, especially when it comes to avoiding common accounting such as the ones below.
Malaysia Accounting Services
Not understanding tax deductibility of business vs private expenses and revenue expenses vs capital expenditures
Only expenses wholly and exclusively incurred in producing company income and expenses that are not specifically disallowed for tax deduction qualify for tax deduction. Also, to qualify, these expenses must not be capital in nature, which is incurred bringing long term benefits to the business.
Not keeping complete records and documents
The taxpayers are required by law to preserve all relevant documents and information of their tax returns for seven years for audit purposes. However, these dated records are known to have gone missing for reasons such as poor handing over between incoming and outgoing employee, disorganised bookkeeping, etc. When taxpayers fail to produce the required supporting records, as requested when questions are raised, IRB may disallow certain deductions while imposing penalties, as failure to preserve documents is an offence under the Business Act and the company directors are liable for punishment. Therefore, it is imperative from day one of operation to ensure proper document keeping and handing over between staff to avoid having to suffer the consequences of lackadaisical financial record keeping for post yearly tax submissions.
Not practising precise bookkeeping
More specifically, the category and purpose of all expenses incurred for tax deduction purposes have to be clearly specified and updated in the company financial records, For example, entertainment expenses, in addition to the receipt or invoice, should indicated if they are provided to customers or staff or for other purposes, as they have tax implication. As for commissions paid out, the recipient’s particulars and the commissions paid for any project or purposes must related wholly to the business. Only with these additional recordings can accountants can have full information to accurately prepare the required statements.
Not reporting cash transactions
Many taxpayers may harbour the thinking that income received in cash, if not itemised and reported, will not be found out by IRB. If such a mistake is made, intentionally or unintentionally, IRB can use the method of “mean test” to find out the unreported cash income. Mean test uses the total net assets’ value plus the living expenses to be assessed against the income and capital gain of a taxpayer. If the discrepancy is huge and lacks supporting documents with explanation, the discrepancy will be treated as unreported income. Also, when cash entered into the accounts as “advanced from director” accumulates to reach a huge amount, and directors are not able to explain satisfactorily where the money advanced to the company comes from, IRB will treat it as unreported income.
Not separating bank accounts for personal and business transactions
When personal bank accounts are used for business purposes, not an uncommon practice with sole-proprietors and the self-employed, business transactions end up quite mixed up with private transactions. Therefore, if fastidious notes are not kept consistently with regard to what belongs to what and when, then it will be difficult for the accountant to segregate transactions when preparing financial accounts for the company. As a result, items will likely end up missed out or inaccurately reported.
Fair to say that perhaps the easiest mistake to avoid is waiting till last minute to start finding, sorting and rushing the accountant to finish the required financial statements for submission. There must be a window of time allowed for the accountant to clarify grey areas in revenue and expense, and carefully consider how to file returns to best benefit your company. Therefore worthwhile it is to seriously considering engaging Malaysia Accounting Services from day one to start proper bookkeeping for your new company.