Business Record Keeping In SG And Everything You Need To Know

Proper business recordkeeping and auditing practices are crucial for many reasons, be it for managing costs for regulatory, legal, or tax purposes or to improve one’s business. Establishing a good recordkeeping process for start-up owners and those beginning their business careers in Singapore may not precisely be up there on your priority list. This article will discuss why that should not be the case and how proper practising recordkeeping early on helps build a strong foundation for your business.

Business recordkeeping defined

As is in its name, recordkeeping is the process of documenting transactions and other business events into an accounting system. These systematic and proper recordkeeping efforts result from the basic yet solid foundation the business’s accounting heavily relies on.

The importance of maintaining business records

Recordkeeping is essential for several reasons, including:

1. Compliance

Apart from being extremely beneficial, having good recordkeeping practices is one of the legal requirements for businesses operating in Singapore. Compliance serves two purposes: to prepare accurate and fair financial statements and correctly explain its conducted transactions and financial position. Moreover, it ensures that a company remains compliant with its tax obligations like GST and other corporate taxes.

2. Deterring fraud or theft

Theft and fraud happen all the time. However, there are ways to prevent them, starting with business recordkeeping. Having detailed records of the expenses and other transactions lets business leaders better understand the organisation’s cash flow and produce the correct and accurate financial statements necessary during audit season, contributing to fraud prevention.

3. Taxation

To support the income, credits, and expenses that a business reports to prepare for their tax returns, they need to have good records. These documents are also generally used to prepare the organisation’s financial statements and track its progress. Being constantly on top of your recordkeeping, you will have an easier time come tax season since there is no need to maintain extra records for tax returns.

List of business records to keep

The Inland Revenue Authority of Singapore (IRAS) states that companies must retain the following business records and transactions for compliance:

• Accounting ledgers, schedules, and journals containing details about the company’s income and expenses, profits and losses, and assets and liabilities
• Source documents detailing all business transactions like receipts, invoices, bank statements, vouchers, and any other relevant materials given or received from customers
• Other written documents that serve as evidence of transactions conducted by or concerning the business

The records a business must keep will depend on whether it is GST-registered or non-GST registered. For example, GST-registered businesses must retain tax invoices issued for income reasons and documents about the disposal of business goods. Non-GST registered companies do not need to maintain such records. The IRAS has also provided this handy recordkeeping checklist to make things easier.

Standard methods used for recordkeeping

There are two ways to maintain business records: physically through paper documents or electronically via software programs. If the records are complete, accurate, and audited, companies can choose either or both. A business can quickly make an electronic version of their physical documents like invoices and receipts by scanning them for the electronic method. In addition, it is essential to invest insufficient security for both ways to ensure they are safe and do not get tampered with.

How long should you hold on to your records?

The IRAS requires businesses to preserve their business records for a minimum of five years by the end of the financial year in which the relevant transactions were conducted. For example, take Company A, whose financial year ends by December 2022. Thus, the company must maintain their records for FY 2022 until at least 2027 of the same months.

If a company gets dissolved, a company officer must ensure to keep all the company’s books for the same duration after the company is officially dissolved. Otherwise, if it is being wound up, the company’s liquidator will take on the responsibility starting from the date of dissolution.

Non-compliance and its consequences

Non-compliance brings severe consequences if any of the following violations are found:

• The company’s accounting records are not kept for the minimum duration of five years
• The company’s accounting records are not stored in a secure and safe place, or
• The company’s accounting records are not maintained at all

Suppose a company fails to maintain its records adequately. In that case, the company and any related officer may face the consequences in the form of up to 12 months of jail term or a fine amounting up to $5000 with an additional default company under the Companies Act.

Failing this obligation is also considered an income tax offence that may result in the IRAS disallowing the guilty company’s expense claims and capital allowance. Lastly, the Income Tax Act imposes consequences in the form of up to six months of jail term in default of payment or a fine amounting up to $1000.

Conclusion

Proper recordkeeping is an essential task that directly benefits a business in its endeavour to achieve success and in its responsibility to remain compliant with the law. Neglecting it is one of the many critical accounting mistakes to avoid since they can result in consequences that could set back a business’s progress.

Maintaining records and documents is only the beginning of a business’s administrative tasks; it must also fulfil its other tasks and obligations like accounting and filing corporate taxes. To ensure that these are handled promptly and efficiently, it is recommended to outsource them to the experts. At OneStop Professional Services, we provide expert accounting and bookkeeping services that save you time and resources that can be better used on growing your businesses. In addition, we also provide other corporate services such as company incorporation services, audit services, valuation services, and the hiring of nominee directors in Singapore.