Produce a draft of your income and expense figures for the year from your own records.
When you file as a self-employed person, a missing invoice, an expense claimed at the wrong amount or a tax pot that is too small usually shows up only once the bill arrives. If you find the same mistake or shortfall before filing, fixing it costs nothing. A dress rehearsal means working out the year's figures from your own records, estimating your tax and MediSave, and checking that your tax pot covers both.
Bring your records from lesson 4.3, your expense sorting from lesson 4.2, your bank statements and the IRAS tax calculator. Set aside about thirty-five minutes. If you are partway through the year, use your year-to-date figures and treat the result as a midyear check.
Start with the total of every invoice you issued for the year. This is your gross trade income. It starts from invoices rather than from money received in the bank, because trade income is generally income earned in the year. If you are unsure which year an invoice belongs to, check the IRAS guidance or ask an accountant.
Next, match each invoice to a payment on your bank statements and note anything that does not line up. A payment with no invoice means an invoice is missing from your records. An invoice with no payment means a client still owes you, and Module 7 deals with that. A payment for a different amount from the invoice is a part payment, a bank charge or an error.
Mei is self-employed. She issued invoices totalling S$62,400, and her bank shows S$60,900 received. The difference is S$62,400 - S$60,900 = S$1,500. She traces it to one invoice issued in December and paid in January, so her records match and her gross trade income is S$62,400.
Total your expenses by category, such as software, phone, internet, transport and materials. For anything you use for both work and personal life, claim only the business share recorded in your notes. For capital items, use the year's capital allowance instead of the purchase price. Subtract your expenses and capital allowances from gross trade income to get your net trade income.
Mei's expenses by category are:
Software: S$1,080 Phone plan: S$960 at a 40% business share, so S$384 claimed Home internet: S$720 at a 30% business share, so S$216 Transport to clients: S$640 Printing and samples: S$420
Her subtotal is S$1,080 + S$384 + S$216 + S$640 + S$420 = S$2,740. She adds the S$800 capital allowance on her laptop, which she worked out in lesson 4.2, for total deductions of S$2,740 + S$800 = S$3,540. Her net trade income is S$62,400 - S$3,540 = S$58,860.
Enter your net trade income into the IRAS calculator, along with any other income and only the reliefs you are sure of. The result is an estimate, not your assessment, but it is close enough to test your pot. Then estimate MediSave from the CPF Board table, using the method from lesson 2.2. Add the two together for your total expected bills.
The IRAS calculator gives Mei S$1,300 in tax. For MediSave, at a rate of 9% (an example rate), she works out 9% of S$58,860 = S$5,297.40, which she rounds to S$5,300. Her total expected bills are S$1,300 + S$5,300 = S$6,600.
Compare your total expected bills with the balance in your tax and MediSave pot. If there is a gap, find its cause before you change anything. A gap has one of two causes, and each has its own fix.
A percentage gap means your income or MediSave rate came out higher than you estimated in lesson 2.4, so the set-aside percentage you chose was too low. The fix is to raise the percentage. A habit gap means the percentage was right but you did not move the share on some payments. The fix is to change the habit and leave the percentage as it is.
Mei's pot holds S$5,900 against bills of S$6,600, a gap of S$6,600 - S$5,900 = S$700. Before changing anything, she checks her pot transfers against her receipts. She finds that in a busy November she missed moving the share on two payments. Her percentage was fine, so this is a habit gap. The same day, she moves S$700 from her holding account to the pot, and she adds a weekly reminder to check for missed transfers.
If your pot holds more than the estimate, leave the extra where it is for now. Wait until the assessments arrive, then move what is left to your holding account.
Finish by writing a one-page statement with five lines: gross trade income, total expenses by category, capital allowances, net trade income, and estimated tax plus MediSave. Below those lines, write your pot balance, the gap, its cause and the action you took. With this done, most of the real filing work is done too. When you file, you copy the figures across and check them once more.
Now work through your own figures, line by line, and fill in the statement.
Fill in the draft income and expense statement. Then write down the gap, if there is one, between your estimated tax and your tax pot.
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