Self-employed

Common mistakes made by the self-employed include wrongful claims for expenses and the understatement of income.

Sole proprietors should claim only actual expenses incurred by the business. This should be supported by receipts and invoices. Approximate amounts are not acceptable.

The self-employed are also urged to keep complete records as they would be required to substantiate their claims for expenses.

Said Mr Khor: 'To support claims, taxpayers must keep complete records and proper receipts to show that the expenses/purchases are incurred for business purposes.

'A good practice is to issue payment vouchers to the recipients. Copies of the payment vouchers, which have been duly endorsed by the recipients, are to be retained by taxpayers to substantiate their claims for expenses.'

A common misconception is that records can be discarded once a Notice of Assessment is received. Self-employed taxpayers must keep and retain sufficient records to enable Iras to ascertain their income and business expenses.

Records should be retained for a period of five years even if an assessment has not been raised. This is because the Comptroller may request these documents in the course of audits.

Reduced penalty

Most people see the filing of income tax returns as a mundane exercise but for taxpayers who fail to report accurately, the penalty could be painful, involving fines or even a jail term.

The good news is that Iras is willing to reduce the penalty for those who voluntarily disclose past mistakes. This is to encourage taxpayers who have submitted incorrect returns to come forward voluntarily to disclose errors or omissions and straighten out their tax affairs.

Under the revised Voluntary Disclosure Programme, Iras will waive the penalty for voluntary disclosures made by individual taxpayers within a 'grace period' of one year from the statutory filing date of April 15.

For voluntary disclosures made after the 'grace period', Iras will impose a standard reduced penalty rate of 5 per cent a year if these disclosures meet qualifying conditions.

Previously, the penalty rate for voluntary disclosure was at an incremental rate of 10 per cent a year, subject to a maximum of 30 per cent.

Where errors are discovered by Iras, penalties of up to double the tax undercharged may be imposed. The reduced penalty regime will take effect from tomorrow.

Those who would like to voluntarily disclose past errors in their returns can approach Iras by sending an e-mail message to iit_compliance@iras.gov.sg, or calling 6351-3481, 6351-3090 or 6351-2915.

For more details of the programme, visit www.iras.gov. sg/irashome/vdp.aspx

This article was first published in The Straits Times.