Managing Business Tax

Taxes can be stressful for any business, and giving out hard-earned business income to the Government is often a hard pill to chew.
While taxes are statutory obligations for companies, compliance can be easier to fulfil when businesses adopt smart tax savings strategies and tax planning methods.
The details shared below will provide helpful guidance in managing business tax.
Understand business tax obligations
Every business has tax obligations to fulfil; knowing the business legal framework and tax obligations set the company to manage its finances and responsibilities better.
Some companies might be required to pay tax, while some will not pay because of their registration status or business size. Some businesses might not pay but are required to file tax returns.
File tax returns
File tax returns as at when due to avoid penalties for non-compliance. Tax returns can be monthly, annually or transaction-based. Examples of tax returns are monthly VAT, PAYE, WHT returns, annual income tax returns, and employee tax returns.
Take advantage of incentives, reliefs & allowances
Tax incentives are reductions by the Government in tax payments to attract investment in a country. The incentives can be a reduction in tax rates, allowances, payment exemption, or tax waivers.
Some tax incentives are tax holidays for pioneer industries, solid mineral business, tax concession for export-oriented companies, 0% tax rate for small companies, some tax exemption for hotel businesses, capital allowance on assets.
Record business income & expenses
Tax is paid on business profit after deducting expenses from income. Correctly record business income & expenses, ensure it is really for the business so that tax authorities can accept the records for tax purposes. Expenses claimed by the company must satisfy the condition of allowable business expense; otherwise, they will be disallowed by the tax authorities.
Collect WHT receipts
Withholding tax (WHT) is an advance payment of tax, and the WHT credits are used by businesses to offset their income tax liability. Make sure to track and collect all WHT receipts. WHT is usually deducted before payment is made on an invoice for goods or services. It is paid as a credit to the Tin of the beneficiary.
For instance, a business issues an invoice of N1m for the supply of goods, WHT deductions at 5% is N50k. N950k will be paid to the business, N50k will be remitted by the payee using the TIN of the business to the tax authority. The company can use the N50k credit to offset year-end income tax.
Charge, collect & remit VAT
Value Added Tax is a consumption tax paid by the final consumer of a good or service. Businesses must charge customers VAT, collect and remit same to the tax authorities. Failure to do so attracts penalties and payments of the tax not collected. The VAT rate is 7.5% of the value of the goods or services. Small businesses with less than N25m is exempted from charging VAT. Large companies engaging with small businesses are expected to self-charge VAT where the small businesses have not charged VAT.
Claim Loss Relief
If your business had churned out losses in the past, those losses can be used to reduce taxable profits when profits will be made in later periods. For example, you have made an aggregate loss of N1m in the past, but in the current year you make a taxable profit of N1.5m. Rather than being taxed on N1.5m for that year you will be taxed on N500k thus getting a relief of N1m. This is why it is crucial to keep proper records and make regular filings of your accounts and annual returns.
Choose Tax-Friendly Investment Options
The Nigerian Government’s investments policies encourage investment in certain sectors of the economy. Specific incentives are granted to investors to promote investment in those sectors. For instance, Dividends paid out of profits of pioneer businesses and wholly export-oriented companies are exempted from taxes.
Plan for Taxes
Taxes are statutory obligations of every citizen and business in a country. Tax planning involves using legal and effective strategies to minimize risk and save money. Evaluate your business, develop an effective tax strategy, and adopt smarter ways of managing business finances.