Running a small business in Nigeria is challenging enough without the added stress of tax problems. Yet every year, thousands of small business owners make avoidable mistakes that result in penalties, interest charges, and sleepless nights.

In this guide, we'll cover the seven most common tax mistakes Nigerian small businesses make—and how to avoid them.

Why Tax Compliance Matters

Beyond avoiding penalties, proper tax compliance:

• Builds business credibility
• Enables access to contracts (many require tax clearance)
• Makes securing loans easier
• Protects you from sudden audits
• Gives you peace of mind

Let's look at what to avoid.

Mistake #1: Not Getting a Tax Identification Number (TIN)

Many small business owners operate without a TIN, thinking they're "too small" to need one. This is wrong and risky.

Why it's a problem:

• It's legally required for all businesses
• You can't file taxes without one
• You may be barred from government contracts
• Banks increasingly require TIN for business accounts

Easy fix: Register for a TIN at any FIRS office or through the Joint Tax Board website. It's free and takes just a few days.

Mistake #2: Mixing Personal and Business Finances

Using your personal bank account for business transactions is one of the most common mistakes—and one of the most problematic.

Why it's a problem:

• Makes it impossible to track business income accurately
• Creates audit red flags
• Makes deductions harder to justify
• Complicates accounting

Get this right: Open a separate business bank account today. Even if you're a sole proprietor, keep business and personal finances separate.

Mistake #3: Poor Record Keeping

Many small businesses rely on memory, scattered receipts, or incomplete records. This causes problems when tax time arrives.

What happens:

• You underestimate income and risk penalties
• You miss legitimate deductions
• You can't prove expenses during an audit
• You spend hours reconstructing records at year-end

What good records look like:

• Every sale recorded (with date, amount, customer)
• Every expense recorded (with receipt)
• Bank statements reconciled monthly
• Digital backups of all documents

Simple solution: Spend 10 minutes daily recording transactions. Use KeepAm to make this automatic and painless.

Mistake #4: Ignoring VAT Obligations

If your business turnover exceeds ₦25 million annually, you must register for and collect Value Added Tax (VAT). Many businesses exceed this threshold without realizing it.

VAT basics:

• Current rate: 7.5%
• Collected from customers, remitted to FIRS
• Filed monthly by the 21st
• Failure to register carries penalties

Common mistakes:

• Not registering when crossing the threshold
• Collecting VAT but not remitting it
• Not charging VAT on taxable goods/services
• Missing monthly filing deadlines

Mistake #5: PAYE Non-Compliance

If you have employees, you must deduct Pay-As-You-Earn (PAYE) tax from their salaries and remit it to the relevant tax authority. This is not optional.

What you must do:

• Deduct appropriate tax from each employee's salary
• Remit to the state's Internal Revenue Service monthly
• File annual returns
• Keep records of all deductions and remittances

Serious consequences: PAYE non-compliance can result in back-taxes, penalties, interest, and even prosecution. Directors can be held personally liable.

Mistake #6: Missing Legitimate Deductions

Many small business owners pay more tax than necessary simply because they don't claim all their legitimate deductions.

Commonly missed deductions:

• Rent for business premises
• Staff salaries and benefits
• Utility bills (electricity, internet, phone)
• Professional services (accountants, lawyers)
• Marketing and advertising costs
• Equipment depreciation
• Vehicle expenses (for business use)
• Bad debts written off
• Training and development costs

Key rule: If an expense is "wholly, exclusively, and necessarily" incurred for business, it's likely deductible. Keep receipts!

Mistake #7: Filing Late or Not at All

The deadline for annual filing is March 31st. Missing it isn't just about penalties—it creates a cascade of problems.

Consequences of late filing:

• ₦50,000 initial penalty (for individuals)
• ₦25,000 for each month of continued default
• Interest on unpaid taxes
• Inability to get tax clearance certificate
• Blocked from government contracts
• Potential prosecution in severe cases

How to Fix These Issues

If you've been making any of these mistakes, here's how to get back on track:

Immediate Actions

1. Get a TIN if you don't have one
2. Open a business bank account this week
3. Set up a record-keeping system (even a simple spreadsheet)

This Month

1. Review your turnover to check VAT registration requirements
2. Audit your PAYE compliance if you have employees
3. List all potential deductions you might be missing

Ongoing

1. Record transactions daily (takes 10 minutes)
2. Reconcile bank statements monthly
3. Review tax obligations quarterly
4. File and pay on time, every time

The Bottom Line

Tax compliance doesn't have to be overwhelming. By avoiding these seven common mistakes, you'll save money, reduce stress, and build a stronger business.

Key takeaways:

• Get and use your TIN
• Separate personal and business finances
• Keep excellent records
• Understand your VAT and PAYE obligations
• Claim all legitimate deductions
• Never file late

Need help staying compliant? Create a free KeepAm account and let us handle the organization for you.