PAYE

The monthly rhythm is fixed and the deadlines are real.

The employer calculates the tax on each employee's emoluments, deducts it, and remits it to the relevant state revenue service by the tenth day of the following month. Late remittance attracts interest and penalties.

Annually, the employer files a return of all emoluments paid and tax deducted for the preceding year, due by the end of January. Employees are also expected to file their own annual returns, though in practice many salaried Nigerians never do because their tax was fully deducted at source.

What is deducted matters to the employee in more places than the payslip. Evidence of PAYE remittance is required for a tax clearance certificate, which is asked for in visa applications, property transactions and some professional registrations. An employee whose employer deducted but never remitted discovers the gap at exactly that moment.

The rates and reliefs are the moving part. The Personal Income Tax Act provides for a consolidated relief allowance and other deductions, including pension contributions, national housing fund contributions and life assurance premiums, which reduce the amount charged to tax. Tax is then charged on the balance in bands at increasing rates.

The tax reform legislation passed in 2025 revised the personal income tax framework, including the bands and reliefs, so the figures that circulated for years are no longer a safe guide. Confirm the current bands and reliefs with your state revenue service or your adviser rather than relying on an old table.

Remote and cross border employment is an area that catches employers out. The state entitled to the PAYE is generally the state where the employee resides, so a company headquartered in Lagos with staff living in Ogun or Abuja may owe those states rather than Lagos, and multi state employers are increasingly challenged on it.

Informal arrangements are the other exposure. Businesses that pay staff in cash without operating PAYE are exposed to the arrears, the penalties and the interest, and the liability sits with the employer rather than with the workers.

Three taxes collected by somebody other than the person who bears them, and they are constantly confused.

PAYE is income tax on employment income, deducted by the employer from salary and remitted monthly to the state revenue service. It is the employee's tax, collected at source.

Withholding tax is an advance payment of income tax deducted when certain payments are made, commonly to contractors, consultants and freelancers. The payer deducts, remits, and gives the recipient a credit note to offset against their own liability.

VAT is a consumption tax on goods and services, charged on the invoice, collected by the supplier and remitted to the FIRS. It is borne by the customer, not by the business.

A freelancer is on the receiving end of withholding tax, not PAYE. An employee is on the receiving end of PAYE. Which one applies is decided by whether the relationship is employment or a contract for services, and getting that classification wrong is a common Nigerian exposure.

PAYE only covers employment income. Rental income, business profits and investment income are taxed separately, and an employee with other income still needs to file.

The employee also has limited visibility. Deduction on the payslip does not prove remittance, and employees generally discover a shortfall only when they apply for a tax clearance certificate.

Compliance is uneven across the informal sector, which means many workers have no tax record at all and struggle to evidence income when they need to.

And the classification question is unresolved for many working arrangements. Businesses treating long term staff as contractors to avoid PAYE are exposed to reassessment, and the exposure is the employer's.