What can LHDN do if my business records are missing or insufficient?
LHDN can disallow expenses you cannot support, estimate your income and raise an assessment, and impose penalties. Failing to keep sufficient records is also an offence: LHDN's public ruling gives a fine of RM300 to RM10,000, imprisonment of up to 12 months, or both.
The Income Tax Act requires sufficient records to establish income and deductions, and LHDN's public rulings explain what is sufficient and how long to keep it.
Possible consequences
- Disallowed expenses: a deduction needs evidence. No invoice or proof of payment can mean no deduction
- Estimated or best-judgement assessment: LHDN's Public Ruling 4/2000 says that where records are not sufficient, chargeable income may be determined according to the Director General's best judgement and an assessment made on that basis
- Offence: the same ruling says the company, or the persons responsible (the manager or principal officer in Malaysia, the directors and the secretary), may be prosecuted and, on conviction, fined not less than RM300 and not more than RM10,000, jailed for up to 12 months, or both. LHDN's penalty table lists the offence under section 119A with the same range
- Penalties on returns: for incorrect returns or under-declared income, the Act provides percentage-based penalties on the tax involved; see the tax section
- Longer look-back: where fraud or wilful default is alleged, LHDN's time limits to assess are extended
What helps
- Bank statements plus invoices or contracts
- A written explanation for unusual items
- Prompt voluntary correction, which usually attracts lower penalties than an audit finding
Seek tax advice if LHDN issues an audit or information request; reply by the deadline given.
Legal basis
- Income Tax Act 1967, s.82
- Income Tax Act 1967, s.82A
- Income Tax Act 1967, s.119A
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- How do I catch up on bookkeeping that has been neglected for a year or more?Gather every document and all bank statements, set a cut-off date, then record month by month starting from the oldest period, reconciling banks as you go. Fix the biggest gaps first and get professional help for anything unclear. File overdue statements and returns as soon as the books are ready.
- What happens if my company has years of unrecorded accounts or unfiled statements?The company and its officers may face compounds or prosecution for missing records and late filings, and LHDN may raise estimated assessments. The usual way forward is to rebuild the books, file the overdue statements and returns, and settle compounds. Get professional help early.
- What is wrong with using business money for personal expenses?A company is a separate legal person, so its money is not the owner's. Paying personal bills from company accounts muddles the books, may breach restrictions on loans to directors, and can lead LHDN to disallow expenses or treat payments as income. Use a director's account or proper salary instead.
- What penalties apply under the Companies Act for poor accounting records?Failing to keep proper accounting records under section 245 of the Companies Act 2016 is an offence by the company and every officer. On conviction, the fine can be up to RM500,000, imprisonment up to three years, or both. Late financial statements or annual returns are separate offences.
- What if I lost a receipt or invoice for a business expense?First ask the supplier for a duplicate copy or statement. If that fails, assemble alternative evidence such as the bank record, a written explanation and any correspondence. Alternative evidence may support the entry, but tax deduction is not guaranteed, so do not create fake documents.