Getting Ready for a Tax Audit and an IRAS Review

Getting a letter from the Inland Revenue Authority of Singapore (IRAS) can be scary. Knowing how to respond makes all the difference, whether it’s a routine desk review or a full field audit [1].

If your records are in order, most audits are easy to handle. Even better, knowing what gets IRAS’s attention can help you avoid problems before they start [2].

This guide goes over common reasons for an audit, what documents you need to have, and how to get ready for one so that it doesn’t stress you out and is just a simple compliance task.

Why IRAS Does Audits

IRAS does audits to [1], [3]:

Make sure that tax returns are correct and complete
Make sure businesses follow tax laws
Find and stop tax evasion and mistakes
Teach taxpayers what they need to do

There are different types of audits, such as desk reviews (where you send in specific documents by mail) and field audits (where IRAS officers come to your business). Both need a lot of planning.

Things that often lead to an IRAS audit

Knowing what IRAS looks for helps you deal with risks before they happen [2], [4]:

1. Big Changes

Profits fall sharply while sales stay the same
Margins are very different from what is normal in the industry
Changes in spending habits that happen all of a sudden

2. Strange or Big Claims

Claims for repairs and maintenance that are too high
Big one-time costs with no clear reason why
Claims for pre-incorporation costs without proper documentation

3. Deals with Related Parties

Deals with related companies at prices that aren’t fair
Management fees paid to related parties without any written agreements
Missing or not enough transfer pricing paperwork [5]

4. Profiling the Risks in the Industry

IRAS keeps track of the risks in different sectors. Because of this, some industries are being looked at more closely [3]:

A lot of cash transactions
Difficult supply chains
Problems with compliance in that sector in the past

5. GST and income tax filings that don’t match

The income tax returns and the GST revenue reports are not the same
GST input tax claims don’t match up with what businesses do
Reviews happen when filings or changes are made late [6]

6. Companies that lose money

Years of losing money while the business keeps going
Companies that lose money but still pay management fees or bonuses to directors

7. Choosing at random

Sometimes, audits are just by chance. IRAS does random audits on a regular basis to make sure everyone is following the rules [1].

8. Information from Other Sources

Reports from whistleblowers
Sharing information with other government departments
News stories about your business

What IRAS Will Ask For: Required Documents

If chosen for an audit, IRAS usually asks for [2], [7]:

Business Papers

Profile of ACRA business
Company rules
Minutes of meetings of the board and decisions
Agreements among shareholders

Records of Money

If necessary, audited financial statements
Trial balance and the general ledger
Statements from all of your bank accounts
Records of cash books and petty cash
Ledgers for sales and purchases

Documents for Taxes

Calculating taxes and making supporting working papers
Tax returns from the previous year and letters to IRAS
Schedules for capital allowances
Records of losses and carry-forwards

Documents for Transactions

Examples of sales and purchase invoices
Contracts with important customers and suppliers
Contracts for rent
Loan contracts
Current account statements for directors and shareholders

Records of Payroll

Records of payroll and statements of CPF contributions
Resolutions for director fees
Contracts and commission plans for staff

Transactions with Related Parties

Paperwork for transfer pricing
Agreements between companies
Proof of pricing at arm’s length [5]

The Program for Voluntary Disclosure

Did you make a mistake on a return from the past? If you come forward before they find the mistake, IRAS has a Voluntary Disclosure Program that lets you pay less in penalties [8].

Lower Penalty Rates

When to disclose	Lowering the Penalty
Before the audit notice	Up to 100% off (only interest charged)
After being told about the audit, but before it starts	Cut by as much as 50%
During the audit	The amount could go down by as much as 30%
After the audit is done	No reduction; full penalties apply

When to Use Voluntary Disclosure [8]:

You found a mistake in a filing from the past
You forgot to include income by mistake
You made a mistake when you claimed expenses
You don’t believe in a previous position

How to Tell Someone About It Voluntarily

Send a letter to IRAS through the myTax Portal that includes [9]:

Information about the mistake or omission
Periods that were affected
Tax calculation that has been changed
Why the mistake happened
Things done to stop it from happening again

Tip: Talk to your tax advisor before you tell anyone. How you present yourself is important and could affect the outcome of your punishment [10].

Tips for Reducing Audit Risk

When chosen, proactive businesses have fewer audits and easier reviews [2], [4]:

Keep all of your records up to date: For at least five years, keep all of your supporting documents. Be ready for IRAS to ask for records from years ago [7].
Reconcile often: Make sure that your GST returns and your income tax returns match. Questions come up when there are differences [6].
Write down transactions with related parties: Keep records of transfer pricing even if you don’t have to by law. It shows that you are acting in good faith and not trying to take advantage of the other person [5].
Talk about things that are out of the ordinary: When you figure out your taxes, make sure to include short notes about any big or strange things. This stops IRAS from thinking the worst.
Keep your word: Late filings put a flag on your file to get it looked at. Always file on time [3].
Hire Professionals: Get help from qualified tax advisors for complicated issues. Their participation shows that they want to follow the rules [10].
Do internal reviews: Look over your own records and filings from time to time. Find and fix mistakes before IRAS does.

Your checklist before the audit

If you get a notice of an audit, go through this checklist right away [11]:

First 48 Hours: What to Do Right Away

☑️ Read the audit letter carefully and make a note of the deadlines and documents you need to send in

☑️ Tell your accountant or tax advisor

☑️ Find out who will be in charge of the audit response

☑️ Don’t throw away any papers (even routine trash should stop)

Getting Ready for Documents

☑️ Systematically collect all requested documents

☑️ Check that all the documents are complete before sending them in

☑️ Get ready to explain anything that seems strange

☑️ Make sure that papers are easy to read and well-organized

Review from within

☑️ Find any possible problems before IRAS does

☑️ Get ready to answer likely follow-up questions

☑️ If you find mistakes, think about voluntary disclosure

☑️ Keep a record of how you review things

While the Audit

☑️ Choose one person to be the point of contact for IRAS

☑️ Answer requests right away

☑️ During meetings and calls, write things down

☑️ If requests aren’t clear, ask for clarification

☑️ Don’t guess—look at the records before you answer if you’re not sure

After the Audit

☑️ Take a close look at the audit results

☑️ Know about any changes that were made

☑️ Make changes to stop it from happening again

☑️ Keep all letters and emails from the audit for your records

What Happens When an IRAS Audit Happens?

Knowing how the process works makes you less anxious [1], [3]:

Notification: IRAS sends a letter that explains what they want and asks for certain documents.
Document Review: IRAS staff look over your submissions and find things that need more investigation.
Interviews and meetings: For field audits, officers may meet with management to talk about what they found.
Draft Findings: IRAS shares its first findings with you and lets you respond.
Final Decision: IRAS sends out the final assessment, which includes any tax changes and fines.
Payment or Refund: You have one month to pay any extra taxes. Refunds are handled quickly.

Common Audit Results and Punishments

Problem	Typical Result
Income that is understated	Tax on income that wasn’t reported plus fines of up to 200% of the tax that wasn’t paid [2]
Expenses that were too high	Expenses that aren’t allowed plus penalties
Late filing	Fines ($200 to $1,000 for each return) [3]
If you make a mistake when claiming GST	You have to pay it back plus up to 200% in penalties [6]
Problems with transfer pricing	Changes and possible fines [5]

The penalties depend on [2]:

If the mistake was on purpose
If you told someone on purpose
Your history of following the rules
Working together during the audit

How PC Lee & Co Can Help

You don’t have to go through an IRAS audit by yourself. We offer full support [10], [12]:

Services Before an Audit

Compliance health checks—find and fix problems before IRAS does
Documentation reviews—Make sure your records meet IRAS standards
Transfer pricing documentation: Make sure your paperwork is strong
Tax training: Teach your team what they need to do to stay compliant

During an Audit

We talk to IRAS on your behalf as your audit representative
Document preparation—Put together and present documents in a clear way
Response drafting: Write clear and complete answers to questions
Support for meetings—go to audit meetings with you

After the Audit

Review of findings—Make sure that the changes are correctly calculated
Penalty negotiation—try to get lower amounts when possible
Process improvement means making changes to stop things from happening again
Voluntary disclosure—help you with disclosure if you need it

Make sure you are confident in your tax compliance

With the right planning and help, tax audits are not too hard to handle [4]. You can lower your audit risk and stress by knowing what causes reviews, keeping good records, and getting professional help [10].

We help small and medium-sized businesses in Singapore with tax compliance at PC Lee & Co. Our team makes sure you’re ready, whether you need proactive advice or someone to represent you in an audit.

Contact us today to talk about what you need to do to stay in compliance with your taxes. Let’s make a tax plan that can stand up to scrutiny.

📞 Call us at 6737 3710

✉️ Email: enquiries@pc-lee.com

📍 Visit: 545 Orchard Road, #10-06 Far East Shopping Centre, Singapore 238882