VAT, WHT and PAYE: The Three That Catch Nigerian SMEs Out

Ask an SME owner which taxes they handle and you will usually hear "we pay our tax". Ask which of the three they filed last month and the answer gets less certain.

VAT, withholding tax and PAYE are not variations of one obligation. They work differently, fall due differently, and fail differently. Rates and thresholds have also changed under recent reforms, so treat any figures you read anywhere — including here — as a prompt to confirm with FIRS, your State IRS or your accountant rather than as settled fact.

VAT: money you collect, not money you earn

When you charge VAT, that portion was never your income. You are holding it on behalf of the tax authority until you remit it.

This is where the trouble starts, because it sits in the same bank account as your takings and spends exactly like your own money. A business can be profitable and still be unable to remit, simply because the VAT was quietly used for stock.

What actually helps: knowing your VAT position continuously rather than discovering it at filing time. Output VAT charged, input VAT paid, net position — as a number you can see today, not one that gets calculated in a panic.

Withholding tax: the one you deduct from someone else

WHT is not a tax on you. When you pay certain suppliers, you hold back a percentage and remit it on their behalf, and you give them a credit note so they can claim it.

Two failures are common. The first is not deducting at all, which leaves you liable for money you never held back. The second is deducting correctly and then never remitting or never issuing the credit note — at which point your supplier cannot claim it, chases you, and the relationship sours over an administrative slip.

PAYE: your staff's tax, your responsibility

PAYE is deducted from salaries and remitted to the State Internal Revenue Service — a different authority from the one handling your VAT, with its own filing and its own annual returns.

The two failure modes are calculating it by hand once and then copying the same figure every month regardless of changes, and deducting it correctly but remitting late. Employees rarely notice until they need a tax clearance certificate and discover the payments were not made in their name.

Why all three fail together

They are usually handled by the same person, at the same point in the month, from the same incomplete records. When that person is busy or away, all three slip at once — and because each has separate penalties, one bad month produces three separate liabilities.

A monthly routine that holds

1. Weekly: make sure sales and purchases are actually entered. Everything below depends on this and nothing else fixes it.
2. Month end, day one: read your VAT position — output, input, net.
3. Month end, day one: list WHT deducted, remit it, issue every credit note.
4. Payroll day: PAYE calculated from current figures, not last month's, and remitted with the salary run rather than "later".
5. Keep the evidence — remittance receipts filed against the period they belong to. An audit is a request for evidence, not for explanations.

The routine matters more than the software. What software should do is remove the arithmetic and the remembering, so the routine survives a busy month.

Frequently asked questions

We are small — do we really need to register for VAT? Registration obligations depend on turnover thresholds that have changed recently. Confirm your position rather than assuming you are below the line.

Our supplier says not to deduct WHT. The obligation is yours, not theirs. If you do not deduct, you can be assessed for it later.

Can my accountant just handle all of it? They can file it. They cannot invent records that were never captured. The capture is yours; the filing is theirs.