What tax audit means
A tax audit is a review of what you filed against what your records show.
The authority selects a taxpayer, requests records for defined years, examines them, and either accepts the returns or raises an additional assessment for tax it says was underpaid.
There are degrees.
A desk review is conducted from the authority's office, based on documents requested and submitted. It is the lightest form.
A field audit involves officers attending the taxpayer's premises to examine books and records directly, and it is more thorough.
An investigation is different in character. It is opened where the authority suspects fraud or deliberate evasion, and it is not routine.
Being audited is not an accusation. Selection can follow from the size of the business, the sector, inconsistencies between filings, a refund claim, or simple rotation.
How it is used
The process follows a predictable sequence and the taxpayer's conduct affects each stage.
Notice. The authority notifies the taxpayer of the audit, the years covered and the records required.
Production. Records are provided: financial statements, general ledger, bank statements, sales and purchase records, payroll records and PAYE remittance evidence, VAT and withholding tax records, and contracts supporting significant transactions.
Examination and queries. The authority raises questions, and the taxpayer responds with explanations and supporting documents.
Draft findings. The authority sets out its position, and there is usually an opportunity to respond before it is finalised.
Assessment. Where the authority concludes tax was underpaid, it raises an additional assessment with any penalties and interest.
Objection and appeal. A taxpayer who disagrees objects within the period allowed, and where the objection does not resolve it, the matter can go to the Tax Appeal Tribunal and onwards.
The practical determinant of how this goes is records. A business with organised books and reconciled bank statements has a short audit. One reconstructing three years from a shoebox has a long one.
Key features
- A review of filed returns against the taxpayer's records
- Ranges from a desk review to a field audit to an investigation
- Selection is often routine rather than suspicion driven
- Concludes with acceptance or an additional assessment
- Penalties and interest can be added to underpaid tax
- Objection and appeal to the Tax Appeal Tribunal are available
How this works in Nigeria
Both the Federal Inland Revenue Service and state revenue services conduct audits, on their respective taxes, and a business can face both.
The recurring Nigerian findings are consistent, and they are worth checking before an audit rather than during one.
PAYE. Deducted but not remitted, or remitted to the wrong state where employees reside elsewhere.
Withholding tax. Not deducted on payments to contractors and consultants, or deducted and not remitted.
VAT. Charged and not remitted, or input claimed where it relates to exempt supplies.
Disallowed expenses. Personal expenditure run through the business, and expenses claimed without supporting documentation.
Related party transactions. Charges between connected companies without agreements or evidence of benefit, which also engages transfer pricing.
Time limits apply to how far back an assessment can reach, with a longer or unlimited reach where fraud or wilful default is alleged, so a taxpayer should confirm the applicable position.
The tax reform legislation passed in 2025 revised significant parts of the framework and the administering arrangements, so anybody dealing with an audit now should confirm current procedure rather than relying on older descriptions.
Engaging is better than avoiding. A taxpayer who does not respond receives a best of judgment assessment based on the authority's estimate, and displacing it afterwards is harder than answering the queries would have been.
Desk review vs tax audit vs tax investigation
Three levels of scrutiny, with different implications.
A desk review is conducted from the authority's office on documents submitted. It is the lightest form and often resolves with clarification.
A tax audit involves a fuller examination, frequently at the taxpayer's premises, covering defined years and multiple taxes. It is routine, thorough and usually concludes with either acceptance or an additional assessment.
A tax investigation is opened where the authority suspects fraud or deliberate evasion. It is not routine, the tone is different, and professional advice should be taken immediately rather than after the first meeting.
A taxpayer should establish at the outset which of the three they are in, because the appropriate response differs. Cooperation and clarification serve the first two. The third calls for advice before anything is said.
Limits and risks
Audits are resource intensive for the taxpayer, and a small business can lose weeks to one.
Assessments raised on a best of judgment basis, where records were not produced, can be substantial and are difficult to displace afterwards.
The objection and appeal process takes time, during which the disputed liability sits over the business.
And outcomes can be inconsistent between officers and between offices, which is frustrating for taxpayers trying to apply a settled approach.
Worth knowing
Reconcile PAYE and withholding tax deducted against what was actually remitted, every quarter, before anybody audits you. Those two are the most common Nigerian audit findings, and the difference between a small correction now and penalties plus interest across three years later is simply when you look.
Questions people ask
What is a tax audit?
A review by the revenue authority of your filed returns against your records, covering defined years. It concludes with either acceptance of the returns or an additional assessment for tax the authority says was underpaid.
Does being audited mean I am suspected of something?
Usually not. Selection can follow from the size of the business, the sector, inconsistencies between filings, a refund claim or rotation. An investigation, which is different, is opened where fraud or evasion is suspected.
What records will be requested?
Financial statements, general ledger, bank statements, sales and purchase records, payroll and PAYE remittance evidence, VAT and withholding tax records, and contracts supporting significant transactions.
What are the most common findings in Nigeria?
PAYE deducted but not remitted or remitted to the wrong state, withholding tax not deducted on contractor payments, VAT charged and not remitted, undocumented expenses, and related party charges with no agreement or evidence of benefit.
Can I challenge an assessment?
Yes. Object within the period allowed, and where the objection does not resolve the matter it can be taken to the Tax Appeal Tribunal and onwards. Engaging early is more effective than challenging later.
What if I ignore the audit?
The authority can raise a best of judgment assessment based on its own estimate. Displacing that afterwards is considerably harder than answering the queries would have been.