Running a business in Malaysia – whether as a freelancer, small business owner, or through a Sdn Bhd – often means managing many moving parts. One common mistake? Mixing personal and business finances. It may seem harmless, but when LHDN comes knocking or audit season rolls around, this can turn into a real mess.
Let’s walk through how to avoid the headache, with some real life examples along the way.
Example 1: Business Car Used for Personal Errands
Scenario:
Your company purchases a car and pays for its petrol, maintenance, and insurance. But you often use it for personal errands and trips.
Potential issue:
LHDN may treat the personal portion of usage as a benefit-in-kind (BIK), which must be declared as part of your director’s remuneration. If not disclosed, it could be considered understated income.
What can you do:
• Keep a record to separate business vs. personal use.
• Declare the BIK value in Form EA.
• Alternatively, claim only the business portion from the company, or have the company charge you for personal use.
Example 2: Registering Utilities Under Personal Name for Business
Scenario:
A home-based business owner runs their operations from home, but electricity, water, and internet bills are under their personal name.
Potential issue:
During tax time, claiming full utility costs may be flagged by LHDN as personal use, unless you can justify the business portion.
What can you do:
Pro-rate your claims based on business vs. personal usage. For example, 30% of electricity if one room is used exclusively for work. Keep supporting documentation and explanations ready. Consider switching utility bills to the business name if feasible.
Example 3: Reimbursing Yourself for Meals Without Proof
Scenario:
You frequently reimburse yourself for “client meetings” over coffee or lunch, but don’t keep receipts or record who the meetings were with.
Potential issue:
Meal claims without receipts or documentation are easily flagged by LHDN as personal. You risk the claims being disallowed as business deductions.
What can you do:
• Always keep receipts and jot down the meeting purpose and name of client.
• Set a clear internal guideline for entertainment claims.
• Avoid claiming daily meals unless they are directly related to existing client engagements.
Example 4: Regular Café Working Sessions Alone
Scenario:
You frequently work from cafés and claim the meals and drinks as business entertainment.
Potential issue:
LHDN typically does not accept self-entertainment (e.g. meals while working alone) as a tax-deductible expense. These may be classified as personal living expenses.
What can you do:
Only claim café expenses when meeting clients or business partners. If it’s a recurring cost, consider renting a co-working space instead, which is more justifiable.
Example 5: Claiming 100% of Petrol for a Personal Car
Scenario:
You use your personal car for both business and personal errands. You pump petrol regularly and claim 100% of it through your company as a business expense.
Potential issue:
Unless the car is fully used for business and clearly registered under the company’s name, claiming the full petrol cost can be challenged. LHDN may consider it a director’s benefit, which could be taxed as a Benefit-in-Kind (BIK) or disallowed as a deduction.
What can you do:
• Keep a record showing business trips.
• Only claim the business-use portion (e.g. 2/3 business use = claim 2/3 of petrol)
• Alternatively, use a monthly mileage claim rate based on business travel only.
Example 6: Paying Personal Income Tax Using Company Money
Scenario:
You pay your personal income tax directly from the company bank account.
Potential issue:
This is not a business expense. It may be considered as director’s benefit if not repaid.
What can you do:
• Avoid paying personal expenses directly from company funds.
• If done by mistake, reimburse the company or record it properly as a salary.
