Sole Proprietor's Tax and Individual Tax

It comes to my attention when one of my friend asked for help on his tax issue, showing how lack of understanding is dangerous enough for an individual unknowingly go against the law without doing anything, and yet he is obliged to do "something".

Most of us know that Sole Proprietorship means: a business owned by an individual with unlimited liability. Unlimited liability is actually a jargon that not many people know, that it means that whatever things go wrong in your business will be held responsible solely by you.

For instance, a loan that due for repayment but business was not good enough to cover. In private limited company, the worst situation is liquidate the company and payoff the liability. If the liquidation cannot payoff the debts totally, the creditors, bankers, government cannot charge the balance due to the shareholders.

However, it is not the case in Sole-proprietorship - any balance or tax due can lead you to legal proceedings under your individual name. Tax unpaid for your business, can be pursued by tax authorities under your individual tax. Loan unpaid by your business, can be pursued by bankers under your individual accounts.

Now we can see the danger if the accounting & tax issues are left unattended. Then, let us look into the responsibility of a sole-proprietor:-

1. Audited accounts - Sole proprietors are not required to audit their financial accounts and submit their financial accounts to the authorities annually. However, bankers may, or may not, required the financial accounts endorsed by auditor if you are applying for loan.
2. Installment payment of tax - a Notice of Installment Payment (CP500) will be issued to sole-proprietor at the beginning of each year indicating the amount and due month in total of 6 bi-monthly installments in the month of March, May, July, September, November of the relevant year and January of the following year.
3. Due date for tax installment is 1st day of the relevant month. An increase of 10% on that installment payment will be imposed upon failure to pay the tax installment within 30 days of the stated date.
4. If you think that the amount indicated as per the CP500 was not realistic, you can submit an application to request for variation not later than 30th June of the relevant year.
5. Request for variation will only be granted in respect of the amount of each installment and not changes in due dates.
6. If a request for variation of installment payments has been approved, and where actual tax payable exceeds total installment payments and the difference is more than 30% of the actual tax payable, then an increase of 10% of the difference will be imposed without further notice being served.

EXAMPLE :


(a) Actual tax payable as per notice of assessment RM 87,700

(b) Amount of installment payments approved RM 12,500

(c) Amount of actual tax payable exceeds amount of installments (a) - (b) RM 75,200

(d) 30% of actual tax payable [30% x (a)] RM 26,310

(e) Difference (c) - (d) RM 48,890

(f) Increase (10% x (e) RM 4,889
 
The submission of tax will need to be submitted together with the sole-proprietor's individual tax under business income, therefore the due date of submission is fall on 30th June of the following year together with the balance payment and penalty, if any.
 
The above should clarify the responsibilities of a sole proprietor, and wish you all the best in achieving goals in 2010 without worrying for the authority bodies to chase after you for your hard-earned money!