Mistake #1: Not Registering for VAT When Required

Value Added Tax (VAT) at 7.5% applies to most goods and services in Nigeria. Under the Nigeria Tax Act (NTA) 2025, if your business provides taxable goods or services, you are required to register for VAT with the Nigeria Revenue Service (NRS) and file monthly returns, regardless of your turnover.

Many business owners assume VAT registration only applies to large companies. This is wrong. Even a freelance consultant or small e-commerce business selling taxable products must register, collect VAT from customers, and remit it to the NRS.

What's new under the NTA 2025: Certain essentials now carry 0% VAT, including basic food items, medical and pharmaceutical products, educational tuition, and educational materials. Make sure you understand which of your products or services are taxable, zero-rated, or exempt.

How to avoid it: Register for VAT as soon as you begin providing taxable goods or services. File your VAT returns by the 21st of each month, even if you had no transactions (you'll file a nil return).

Mistake #2: Missing PAYE Obligations as an Employer

If you have employees, even just one, you are legally required to deduct Pay As You Earn (PAYE) tax from their salaries and remit it to the relevant State Internal Revenue Service (SIRS) by the 10th of the following month.

Under the NTA 2025, the personal income tax brackets have changed significantly. Employees earning ₦800,000 or less per year are now exempt, and rates range from 15% to 25% on higher income bands. Make sure your payroll calculations reflect these new rates.

Many small businesses hire staff informally without deducting PAYE. When the tax authority catches up (and they increasingly do, especially through bank monitoring), the employer is liable for all unremitted taxes plus penalties and interest.

How to avoid it: Set up a proper payroll system from day one. Calculate PAYE using the new NTA 2025 progressive tax table, deduct it monthly, and remit on time. Keep records of all deductions and remittances.

Mistake #3: Mixing Personal and Business Finances

Using a personal bank account for business transactions is one of the most common mistakes, and one of the most expensive when tax time comes.

When personal and business finances are mixed:

  • It becomes difficult to accurately calculate business income and expenses
  • You may accidentally declare personal income as business income (or vice versa)
  • Tax authorities may disallow expense claims due to lack of clear documentation
  • You lose the liability protection that comes with an LLC

How to avoid it: Open a separate business bank account and route all business transactions through it. This creates a clear paper trail and makes tax filing straightforward.

Mistake #4: Not Keeping Proper Records

Nigerian tax law requires businesses to maintain records for at least 6 years. These records include invoices, receipts, bank statements, payroll records, contracts, and financial statements.

Under the NTAA 2025, failure to comply with NRS record-keeping requirements can attract penalties of up to ₦20 million, plus ₦2 million per day of continued non-compliance. Without proper records, you cannot:

  • Accurately calculate your tax liability
  • Claim legitimate business expenses as deductions
  • Defend your position in a tax audit
  • Obtain a Tax Clearance Certificate

How to avoid it: Use basic accounting software (even a simple spreadsheet) to track all income and expenses. Keep digital copies of all receipts and invoices. Reconcile your records monthly, not annually.

Mistake #5: Ignoring Withholding Tax Obligations

Withholding Tax (WHT) is a tax deducted at source on certain payments like rent, professional fees, contracts, dividends, and interest. If your business makes these types of payments, you are legally required to deduct WHT and remit it to the NRS.

The WHT rates include: 10% on rent, 10% on professional fees (companies), 5% on contracts, and 2% on sales of goods by Nigerian businesses (introduced under the new WHT Regulations). Small entities with a valid Tax ID whose total transactions don't exceed ₦2 million per month are exempt from WHT deduction.

When the NRS audits your company and discovers unremitted WHT, you'll be liable for the full amount plus penalties. You cannot pass this back to the person you paid. It's your obligation as the payer.

How to avoid it: Understand which payments attract WHT and at what rates. Deduct WHT from every qualifying payment, remit it by the 21st of the following month, and issue WHT credit notes to the payees.

The Bottom Line

Tax compliance isn't optional, and the cost of getting it wrong far exceeds the cost of getting it right. The NTA 2025 introduced stricter penalties and broader enforcement powers for the Nigeria Revenue Service. If you're unsure about your tax obligations under the new law, it's better to seek professional help than to risk penalties, interest, and potential prosecution.