Common Nigerian Tax Filing Mistakes

As the year draws to a close, Nigerian businesses and individuals face critical tax filing deadlines. Whether your company’s financial year ends in December, you’re preparing to file annual returns, or you need to secure your Tax Clearance Certificate for 2025 opportunities, avoiding common mistakes can save you from penalties, interest charges, and compliance headaches.

This comprehensive guide from SOW Professional highlights the most frequent errors taxpayers make during end-of-year filings and shows you exactly how to avoid them.

 

Why End-of-Year Tax Compliance Matters

The end of the year marks peak season for tax compliance in Nigeria. For companies with December year-ends, this means preparing Companies Income Tax filings due by June 30th. Meanwhile, individuals need to start gathering documents for annual returns due by March 31st. Additionally, businesses across Lagos and Nigeria must file their annual returns with State Internal Revenue Services.

Beyond these regular obligations, many organizations need Tax Clearance Certificates to bid for contracts, renew licenses, or complete business transactions in the new year. Consequently, missing deadlines or filing incorrectly can result in substantial penalties, denied TCCs, and missed business opportunities.

1. Missing Companies Income Tax (CIT) Filing Deadlines Based on Your Financial Year-End

One of the costliest mistakes companies make is miscalculating their CIT filing deadline or assuming all companies file at the same time.

Understanding CIT deadlines: Companies Income Tax returns must be filed within 6 months after your accounting year-end, not a universal date. For instance:

• December 31st year-end: CIT returns due by June 30th
• March 31st year-end: CIT returns due by September 30th
• September 30th year-end: CIT returns due by March 31st

Moreover, companies often confuse estimated tax filing (due within 2 months of year commencement) with actual returns. This confusion leads to missed deadlines while waiting for audited accounts or incorrectly tracking the 6-month countdown from your specific year-end date.

The consequences are significant: penalties start at ₦25,000 for the first month of default, then ₦5,000 for each subsequent month. Furthermore, interest accrues at 10% per annum on unpaid taxes, and persistent non-compliance can result in sealed business premises.

Pro tip for December year-end companies: Start your audit and tax computation process in January. Otherwise, waiting until March or April leaves insufficient time for review and inevitably results in rushed, error-prone filings.

2. Incorrect Companies Income Tax Computations

Errors in computing your assessable profit and tax liability can trigger assessments, audits, and additional tax demands from FIRS. These mistakes typically fall into several categories.

Reconciliation errors are particularly common. Many companies fail to properly reconcile accounting profit to taxable profit or add back non-deductible expenses. Similarly, they incorrectly treat capital expenditure as revenue expenses or miss disallowable expenses like entertainment, penalties, and donations above limits.

Capital allowances present another challenge. Companies either don’t claim available capital allowances on qualifying assets or use incorrect rates for different asset categories. In addition, failing to maintain proper asset registers or double-claiming allowances already used creates significant issues during audits.

Minimum tax calculations often confuse preparers. The rule is straightforward: apply 0.5% of gross turnover when assessable profit is less than ₦500,000. However, many companies compare computed tax with minimum tax incorrectly or don’t understand when minimum tax applies.

Finally, tax rate errors persist. The standard rate is 30% for most companies, yet some apply the wrong rate or forget that small companies with turnover under ₦25 million qualify for 20%. Importantly, remember that Education Tax (2.5% of assessable profit) is separate from CIT.

To avoid these errors, engage qualified tax professionals to prepare and review computations. Additionally, maintain detailed working papers supporting all adjustments and keep comprehensive fixed asset registers for capital allowances.

3. LIRS Annual Returns Filing Errors

For businesses operating in Lagos, having registered with  the Lagos State Internal Revenue Service (LIRS) annual returns represent a separate obligation from federal taxes. Despite this, many companies make critical mistakes.

First, understand what LIRS annual returns are: All companies registered in Lagos or conducting business there must file annual returns with LIRS, regardless of profitability. These returns capture employment information and business activities, forming the basis for PAYE and other state tax assessments.

The most common mistake? Believing that filing with FIRS exempts you from state obligations. Additionally, companies often don’t file because their business didn’t make profit or miss the filing deadline (typically within 6 months of year-end). Others provide incomplete employee information or fail to declare all business locations and activities in Lagos.

Critical reminder: Even if your company operates nationwide, any presence in Lagos whether an office, staff, or warehouse requires filing annual returns with LIRS. Similar obligations exist for other states where you conduct business.

Lagos State imposes significant penalties for late or non-filing of annual returns. Therefore, persistent default can lead to business closure or difficulty obtaining state-level Tax Clearance Certificates.

4. Individual Annual Returns Filing Mistakes

Many individuals believe that if their employer deducts PAYE, they don’t need to file annual returns. Unfortunately, this is incorrect and can result in serious compliance issues.

Who must file? All individuals earning income in Nigeria, particularly those with multiple income sources (employment plus business, rental, or investment income), self-employed persons, business owners, directors of companies, and professionals in private practice. The filing deadline is March 31st of each assessment year.

The most common error is not filing at all. Many assume PAYE deduction equals full compliance. However, even salaried employees must file annual returns declaring all income sources.

Furthermore, individuals frequently provide incomplete income declarations. They fail to report income from side businesses or consultancy, rental income from properties, investment income (dividends, interest), director’s fees from multiple companies, or income from foreign sources.

On the other hand, many individuals overpay tax by not claiming legitimate reliefs. These include the Consolidated Relief Allowance (higher of ₦200,000 or 1% of gross income, plus 20% of gross income), pension contributions to approved schemes, National Housing Fund contributions (2.5% of basic salary), National Health Insurance Scheme contributions, and life insurance premiums.

Pro tip: Start gathering documents in January, payslips from all employers, bank statements, investment statements, evidence of pension contributions, and receipts for deductible expenses. This approach makes March filing significantly easier.

5. Tax Clearance Certificate (TCC) Application Errors

As year-end approaches, many businesses and individuals rush to obtain Tax Clearance Certificates for new year opportunities. However, common mistakes can delay or prevent TCC issuance.

A TCC is evidence that you have filed all required tax returns and paid all taxes due for the relevant period. It’s valid for 12 months and required for bidding on government contracts, renewing trade licenses and business permits, certain regulatory approvals, loan applications at some financial institutions, property transactions, and immigration applications.

The three-year requirement catches many by surprise. You must have filed returns for at least the past 3 years. Consequently, many applicants discover they’re missing returns from 2 or 3 years ago only when they apply.

Moreover, outstanding tax liabilities block TCC issuance. Common issues include partial payment of assessed taxes, unpaid penalties from late filings, outstanding Education Tax or other levies, and disputed assessments that haven’t been resolved.

Incomplete documentation also causes delays. Companies need audited accounts, evidence of tax payments (e-tickets, bank statements), complete schedules or supporting documents for filed returns, and all required information on application forms.

Importantly, understand which authority to approach. Individuals and companies may need TCCs from both FIRS (for federal taxes) and State IRS (for state taxes like PAYE). Therefore, applying only to FIRS when a contract also requires state-level clearance creates problems.

The biggest mistake? Last-minute applications. TCC processing takes time, especially if your records need review or there are outstanding issues to resolve. Thus, waiting until you need it urgently for a bid submission often results in missed opportunities.

6. Inadequate Documentation and Record-Keeping

Poor documentation is one of the primary reasons for filing delays, rejected returns, and difficulties during tax audits.

For Companies Income Tax, you need: audited financial statements (prepared in accordance with IFRS), detailed fixed asset register for capital allowances, schedule of related-party transactions, evidence of tax payments and WHT credits, transfer pricing documentation (if applicable), and board resolutions approving accounts and tax filings.

For LIRS/State annual returns, gather: monthly PAYE remittance schedules and evidence, employee register with TINs, business license and incorporation documents, proof of business locations and activities, and financial summary reconciled with FIRS filings.

For individual annual returns, collect: all payslips from the tax year, evidence of other income sources, receipts for claimable expenses, pension contribution statements, NHF contribution evidence, and previous year’s tax returns for reference.

Common mistakes include: delaying audit until it’s too late for timely CIT filing, not maintaining proper records of estimated tax payments, missing WHT certificates from clients/customers, inadequate support for claimed deductions, and lost or incomplete payroll records.

Best practice: Implement a tax compliance file system where all relevant documents are collected monthly throughout the year, rather than scrambled together at filing time.

7. Missing Education Tax and Other Levies

While focusing on CIT, companies often forget other federal tax obligations that have year-end implications.

Education Tax is due within 6 months of accounting year-end (same as CIT) at a rate of 2.5% of assessable profits. Notably, companies must file Education Tax returns separately from CIT. Furthermore, this is due even if your company pays minimum tax for CIT.

National Information Technology Development Levy (NITDL) applies at 1% of profit before tax for companies with turnover of ₦100 million+ in specified sectors. Importantly, filing requirements exist even if you believe you’re exempt.

Create an end-of-year checklist of all applicable taxes and levies for your company, with their respective deadlines, to ensure nothing is missed.

8. Incorrect Treatment of Withholding Tax Credits

Withholding tax (WHT) credits can significantly reduce your CIT liability. However, many companies make errors in claiming them.

Common mistakes include claiming WHT without proper documentation (certificates from payers), including WHT that hasn’t been actually deducted or remitted, double-claiming WHT in different tax years, not reconciling WHT claimed with available certificates, and missing the deadline to claim WHT credits (typically same year plus 6 years).

Best practice for end-of-year: First, reconcile all WHT certificates received against income recognized. Then, follow up with clients/customers for outstanding WHT certificates before year-end. Finally, maintain a detailed schedule of WHT credits being claimed and ensure WHT rates and amounts match actual certificates.

9. Not Planning for Tax Payment Obligations

Filing returns is only half the equation, as you must also pay the taxes due. Unfortunately, many companies file correctly but create cash flow problems by not planning for payment.

CIT payment is due at the same time as filing (6 months after year-end). If you’ve underpaid estimated taxes, the balance is due with your annual return. Moreover, interest accrues on late payments at 10% per annum, and partial payments don’t stop penalties from accruing.

For effective cash flow planning: Review your draft tax computation in advance to estimate liability. Additionally, set aside funds progressively throughout the year rather than waiting until the filing deadline. If unable to pay in full, engage FIRS early about payment plans.

Remember: You cannot obtain a Tax Clearance Certificate if you have outstanding tax liabilities. Therefore, payment planning affects more than just compliance—it impacts your ability to pursue business opportunities.

10. Overlooking Multi-State Filing Obligations

If your business operates in multiple states, you have filing obligations beyond FIRS and your home state.

Physical presence (office, warehouse, factory), employees residing and working in the state, or significant business activities or revenue from the state all trigger filing obligations. States with active enforcement include Lagos (LIRS), Rivers (RIRS), Abuja FCT (FCT-IRS), and other commercial hubs like Kano and Kaduna.

Common mistakes include only filing in the state where you’re registered, not filing in states where you have branches or significant operations, inconsistent reporting across different state returns, and missing state-specific deadlines which may differ from FIRS.

End-of-year tip: Conduct a presence review to identify all states where you have filing obligations, then ensure compliance in each before seeking TCCs.

11. Not Seeking Professional Help for Complex Situations

While some tax matters are straightforward, end-of-year filings often involve complexity that requires professional expertise.

Consider professional tax assistance for first-time filing after incorporation, companies with complex transactions (restructuring, mergers, foreign operations), businesses with related-party transactions requiring transfer pricing documentation, situations with prior year non-compliance or outstanding tax issues, and when you’ve received queries or audit notices from tax authorities.

The benefits are substantial: Professionals ensure accurate computations and compliance with current laws, identify legitimate tax savings and planning opportunities, reduce risk of costly errors and penalties, and provide documentation that withstands audit scrutiny. Moreover, they save management time to focus on core business and offer representation in dealings with FIRS and State IRS.

At SOW Professional, we specialize in end-of-year tax compliance for Nigerian businesses and individuals, ensuring your filings are accurate, timely, and optimized.

Best Practices for End-of-Year Tax Filing Success

Start early: Don’t wait until March or April to begin your December year-end tax processes. Instead, begin audit and tax computation work in January.

Create a compliance calendar: Map out all your filing deadlines based on your specific year-end, not generic dates. Include FIRS, LIRS (or your state IRS), Education Tax, and TCC renewal dates.

Maintain organized records: Keep all relevant documents, audited accounts, payment evidence, WHT certificates, payroll records, in an easily accessible system throughout the year.

Reconcile monthly: Don’t wait until year-end to reconcile PAYE, VAT, and WHT. Monthly reconciliation makes year-end filing much smoother.

Plan for cash flow: Review estimated tax liabilities early and ensure funds are available for payment when returns are due.

Review prior years: Before filing current year returns, ensure all prior year obligations are complete. This is essential for TCC applications.

Leverage technology: Use FIRS TaxPro-Max and state IRS online platforms for filing. E-filing is faster and provides confirmation of receipt.

Conclusion: End Your Tax Year with Confidence

End-of-year tax filing in Nigeria requires careful attention to multiple deadlines, accurate computations, comprehensive documentation, and strategic planning. Fortunately, the mistakes outlined in this guide are all avoidable with proper preparation and professional support.

As you approach your filing deadlines, remember that Companies Income Tax is due 6 months after YOUR year-end, not a universal date. Similarly, LIRS/State Annual Returns are required for all companies with state presence, separate from federal filings. Individual Annual Returns have a March 31st deadline that applies even if you have PAYE deductions. Finally, Tax Clearance Certificates require 3 years of filed returns and fully paid taxes—so plan ahead.

Key success factors include: starting your tax process early in the year, maintaining comprehensive and organized documentation, understanding all your filing obligations (federal, state, and levies), planning for both filing AND payment, seeking professional help for complex situations, and never delaying in addressing compliance gaps.