Handling Your Tax As A Consultant or Self-Employed And As A Registered Company In Nigeria

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Yesterday, I went to LIRS to find out how to do my own income tax and set-up a PAYE tax account for UrBizEdge Limited full-time employees. The tax official I met with was a very kind person. He took out time to thoroughly explain how it all works and gave me guidance on how to put in the necessary applications and fill required forms.

In today's posts I will be sharing with you all you need to be aware of if you are a consultant or self-employed person as regards handling your own tax and then if you run a business, how you should go about handling your federal and state taxes.

 Consultant or Self-employed
If you work for yourself or hold a consulting role with another company where they expect you to handle you own tax, then you'll find the following information very useful.

Your gross income, which is a combination of earned income and investment income, is taxed as follows.

A consolidated relief allowance (CRA), pension contribution, life insurance, health insurance and eligible gratuities are deducted from your gross income and the tax rate is applied on the remainder, so you don't pay tax on all your taxable income. The consolidated relief allowance is N200,000 from your annual income (which translates to about N16,666/month). But if you earn more than N20 million a year, that relief allowance becomes 1% of your gross income (so someone earning N25 million a year will get a relief of N250,000).

After the deductions, the remainder is taxed as follows:
The first N300,000 is taxed at 7%, the next N300,000 is taxed 11%, the next N500,000 is taxed 15%, the next N500,000 is taxed 19% and the next N1.6 million is taxed 24%.
But if that remainder is more than N3.2 million, you get a flat tax rate of 24%.

For your tax filing, you'll use form A (assuming all the states in Nigeria call it same name as Lagos call its) and you'll do the filing once a year. Between January 1 and March 31, after which you get a late filing penalty of N50,000. This tax filing is called Direct Assessment. And when you've done for the last three years, you are eligible to request for your tax clearance card. I have one from my consulting work in year 2011/2012.

This tax is handled at the state level. You pay to the state tax authority.

 As a Registered Company: VAT, Income tax, Education tax and Payroll tax etc.
If you run a registered company in Nigeria, at the minimum, you will need to file the following taxes:

  • Value added tax (VAT) monthly. It is 5% of all your sales. It is the single largest source of penalties/fines for most companies. A senior friend once had his company fined many millions of Naira for not filing his monthly VAT, it almost wrecked him. Another I once consulted for deeply hates tax people for the hell they took him through for VAT sake.
  • PAYE tax monthly for your staff. I hear the PAYE tax calculation is also same as that for the direct assessment (posted above), just that it's broken down to monthly payments and not one yearly payment. It also benefits from the same eligible deductions.
  • Income tax, education tax and others depending on your industry. Via a tax advisory firm you'll file your corporate tax and submit your audited annual reports. And sometimes, like us, you'll pay more to the tax advisory firm than you'll pay as tax. So factor that biggerly in.
VAT and Income tax goes directly to the federal tax authority (FIRS) while PAYE tax goes to the state tax authority.


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