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Filing your tax early as a small business comes with numerous benefits that can easily be missed out on if overlooked. The Federal Inland Revenue Service often emphasises the importance of filing taxes early to avoid issues like identity theft and penalties.
While filing your taxes early might seem complicated, it is a smart decision every business owner should make to boost credibility and proper financial management.
In this guide, we'll explore what you need to know before filing your taxes with the FIRS, the steps, and the benefits included.
What Does it Mean to File Your Tax as a Business in Nigeria?
Tax filing is an obligation that every working person in Nigeria must fulfil to the government. It involves reporting your expenses, income, and tax liabilities to the FIRS to enable the government to provide public services.
In Nigeria, every employed individual must file taxes after the end of a tax year (March 31), while self-employed persons/businesses do so six months after an accounting year. Furthermore, taxes such as the Value Added Tax should be filed before the 21st of every month to avoid missing deadlines and penalties.
Small businesses with a turnover of less than N25 million are not required to pay Company Income Taxes. They are, however, obligated to pay other taxes such as VAT, withholding taxes, stamp duties, pay-as-you-earn, capital gains tax, etc.
"Understanding the type of business you run, be it a sole proprietorship, Limited liability company, Partnership, etc, enables you to file your taxes correctly."
Why Should You File Your Taxes Early?
Filing your taxes early with the FIRS as a business in Nigeria offers you many benefits, some of which include the following;
1. You can Avoid Legal Penalties
One of the major risks of filing your taxes late as a business owner is the accumulation of penalties the FIRS imposes.
These penalties, which can add up to 5% of unpaid taxes monthly, can drain your business resources and cause you to spend more than budgeted. You can easily avoid these legal penalties by filing your taxes promptly and in an organized manner.
2. Proper Financial Planning
The ability to predict your business's cash flow is ideal for making sound financial decisions. By filing your taxes early, you can better plan your business expenses and tax estimates for the future without disrupting your day-to-day operations.
You can also claim any refunds that the FIRS may owe you after an audit and use them as extra cash to run your business.
3. Unlock Incentives and Tax Refunds
Sometimes, the government can offer incentives or refunds for your business if you comply with tax policies. By filing your taxes early enough, you can qualify for these benefits and enjoy the extra financial rewards.
4. Avoid Tax Identity Theft
Often, scammers can use your details, such as your TIN, to file taxes falsely under your name, claim benefits, and keep the refunds. These scammers typically try to file the taxes early enough, even before you can file a legitimate return.
Research by an NGO, the Anti-Corruption Agencies of Nigeria, states that Nigerians have lost an estimated $18 billion in internet fraud and non-payment of taxes. Fortunately, you can avoid such scams and stay informed of your tax activities by filing your taxes early and properly.
5. It Helps You Keep Track of your business Goals and Reports
Filing your taxes on time gives you a clear picture of your business' performance, profit/loss reports, and general overview.
By properly understanding your business, goals, and cash flows, you can better plan for the next tax year and make adequate preparations and modifications.
How to File Your Taxes with the FIRS
Thanks to the advancement in technology, you can now file your taxes electronically (e-filing portals) or in person at the nearest FIRS office. To properly file your taxes, you'll have to provide the following documents;
Tax identification number (TIN) or RC number.
Audited financial statements comprising profit/loss statements, financial position and notes.
Completed tax return forms.
Capital allowance schedules with a detailed breakdown of capital allowances claimed on carrying asset classes.
Tax computation schedule showing the reconciliation of profits to taxable profits and all adjustments
Tax exemption and compliance certificates in cases of tax reliefs and exemptions
Withholding tax credit notes for deducted taxes on the company's income.
Supporting documents/ schedules like the previous year's losses carried forward, claimed deduction evidence, etc.
Once you have your documents ready, you can file your taxes with the FIRS by following the steps below;
Gather all your required documents.
Download and fill the applicable tax forms for manual filing, such as Form C08A, C08B, C08C, OR C08D. If you are filing electronically, you can fill out these forms on the portal.
Login to the FIRS self-filing system to file your tax returns
Properly report your sources of income and claim any eligible reliefs or deductions.
Accurately calculate your taxable income and tax liability.
Ensure that you obtain an acknowledgement or receipt for your records.
Quote your TIN correctly on your tax forms and payments. A valid TIN makes you eligible for tax clearance certificates.
Conclusion
Properly conducting required activities such as tax filing is essential for your business. By filing your taxes early, you can avoid penalties and identity theft and have a clear overview of your business goals.
You can also ensure the smooth running of your business finances by using payment processing platforms and business bank accounts such as Moniepoint to ensure reliability, speed, and safety.
