VAT is not your Money
Picture this: a customer walks into your fabric shop on Adeniji Adele Road and spends ₦20,000. At 7.5% VAT, they hand you an extra ₦1,500. That ₦1,500 is not a tip, not working capital, and certainly not extra profit — it belongs to the Federal Government from the moment the customer pays. You are only holding it for a short while.
Too many Nigerian businesses quietly make the same mistake: they treat VAT as if it were theirs to spend. During slow months, VAT gets used to restock inventory, pay casual staff, or cover a surprise repair. But VAT is collected in trust and must be remitted to the tax authority on a strict schedule. When businesses run out of that float, the remittance day becomes a crisis — penalties, interest, and reputational damage follow.
If your business has an annual turnover above ₦100 million, you must charge VAT at 7.5%. If your turnover is below that threshold, you’re treated as a small business and are generally exempt from charging VAT and filing returns. That distinction matters: it determines whether VAT is a legal responsibility or a non-issue.
The remittance rule is plain and monthly: VAT collected in any month must be remitted by the 21st of the following month. So, VAT collected in March is due by April 21. This is not quarterly. It is not annual. It is monthly—without exception. Miss this date and the cost is not just a late fee; it can quickly become a serious financial problem.
There is a positive part many businesses miss: input VAT. Input VAT is the 7.5% VAT you paid on goods and services used in your business — fuel for your generator, packaging materials, raw materials, professional fees, even certain repair services when supported by proper tax invoices. You don’t remit the gross VAT you collected; you remit the net VAT — output VAT collected minus input VAT paid.
Example: imagine you sold goods and collected ₦7,500 VAT (which is 7.5% on ₦100,000 of sales). During the same month you bought packaging and paid ₦2,250 VAT (7.5% on ₦30,000 of purchases). You are allowed to deduct that ₦2,250 from the ₦7,500 and remit only ₦5,250. That netting reduces your cash outflow legitimately—but only if you keep proper invoices and claim the input VAT.
Many businesses fail to claim input VAT because they either accept poor documentation from suppliers, lose invoices, or don’t know what qualifies. That’s money left on the table. Insist on proper tax invoices from every supplier, scan and store them immediately, and make input VAT claims a routine part of your bookkeeping.
What if you don’t remit on time? The consequences are punitive. There is a 10% penalty on the unpaid VAT amount plus interest calculated at the Central Bank of Nigeria’s monetary policy rate under Section 107. A small unpaid VAT can swell into a heavy liability quickly when penalties and interest are added. Beyond the financial hit, non-compliance can lead to frozen accounts, distrust from suppliers and banks, and damaged business reputation.
Real stories make the point clearer. An event planner in Lagos, during a busy season, used collected VAT to pay vendors. When remittance day arrived, there was no VAT float left. The business incurred penalties and interest and had to scramble to recover, risking relationships with suppliers. A contractor in Port Harcourt did the opposite: kept a VAT ledger, claimed input VAT on equipment and materials, and paid a much smaller net amount. That contractor used the savings to buy a new generator—turning good VAT discipline into business advantage.
Ask these questions today: are we filing VAT returns correctly every month? Are we claiming every input VAT credit we can support with proper invoices? Do we have a separate VAT account? If your accountant cannot answer quickly and with evidence, get a second opinion. VAT compliance is not only about avoiding fines; it’s critical for managing cash flow and maintaining credibility with customers, suppliers and banks.
In the fast-paced world of Nigerian trade—where margins are tight and cash is king—VAT is an area where discipline directly affects survival and growth. Treat VAT for what it is: government money you temporarily hold in trust. Keep your invoices, claim your input VAT, plan remittances, and protect the VAT float. Do that, and your business will avoid unnecessary penalties, improve cash flow, and be better positioned to grow.
by DR ADENIYI BAMGBOYE
Picture this: a customer walks into your fabric shop on Adeniji Adele Road and spends ₦20,000. At 7.5% VAT, they hand you an extra ₦1,500. That ₦1,500 is not a tip, not working capital, and certainly not extra profit — it belongs to the Federal Government from the moment the customer pays. You are only holding it for a short while.
Too many Nigerian businesses quietly make the same mistake: they treat VAT as if it were theirs to spend. During slow months, VAT gets used to restock inventory, pay casual staff, or cover a surprise repair. But VAT is collected in trust and must be remitted to the tax authority on a strict schedule. When businesses run out of that float, the remittance day becomes a crisis — penalties, interest, and reputational damage follow.
If your business has an annual turnover above ₦100 million, you must charge VAT at 7.5%. If your turnover is below that threshold, you’re treated as a small business and are generally exempt from charging VAT and filing returns. That distinction matters: it determines whether VAT is a legal responsibility or a non-issue.
The remittance rule is plain and monthly: VAT collected in any month must be remitted by the 21st of the following month. So, VAT collected in March is due by April 21. This is not quarterly. It is not annual. It is monthly—without exception. Miss this date and the cost is not just a late fee; it can quickly become a serious financial problem.
There is a positive part many businesses miss: input VAT. Input VAT is the 7.5% VAT you paid on goods and services used in your business — fuel for your generator, packaging materials, raw materials, professional fees, even certain repair services when supported by proper tax invoices. You don’t remit the gross VAT you collected; you remit the net VAT — output VAT collected minus input VAT paid.
Example: imagine you sold goods and collected ₦7,500 VAT (which is 7.5% on ₦100,000 of sales). During the same month you bought packaging and paid ₦2,250 VAT (7.5% on ₦30,000 of purchases). You are allowed to deduct that ₦2,250 from the ₦7,500 and remit only ₦5,250. That netting reduces your cash outflow legitimately—but only if you keep proper invoices and claim the input VAT.
Many businesses fail to claim input VAT because they either accept poor documentation from suppliers, lose invoices, or don’t know what qualifies. That’s money left on the table. Insist on proper tax invoices from every supplier, scan and store them immediately, and make input VAT claims a routine part of your bookkeeping.
What if you don’t remit on time? The consequences are punitive. There is a 10% penalty on the unpaid VAT amount plus interest calculated at the Central Bank of Nigeria’s monetary policy rate under Section 107. A small unpaid VAT can swell into a heavy liability quickly when penalties and interest are added. Beyond the financial hit, non-compliance can lead to frozen accounts, distrust from suppliers and banks, and damaged business reputation.
Real stories make the point clearer. An event planner in Lagos, during a busy season, used collected VAT to pay vendors. When remittance day arrived, there was no VAT float left. The business incurred penalties and interest and had to scramble to recover, risking relationships with suppliers. A contractor in Port Harcourt did the opposite: kept a VAT ledger, claimed input VAT on equipment and materials, and paid a much smaller net amount. That contractor used the savings to buy a new generator—turning good VAT discipline into business advantage.
Ask these questions today: are we filing VAT returns correctly every month? Are we claiming every input VAT credit we can support with proper invoices? Do we have a separate VAT account? If your accountant cannot answer quickly and with evidence, get a second opinion. VAT compliance is not only about avoiding fines; it’s critical for managing cash flow and maintaining credibility with customers, suppliers and banks.
In the fast-paced world of Nigerian trade—where margins are tight and cash is king—VAT is an area where discipline directly affects survival and growth. Treat VAT for what it is: government money you temporarily hold in trust. Keep your invoices, claim your input VAT, plan remittances, and protect the VAT float. Do that, and your business will avoid unnecessary penalties, improve cash flow, and be better positioned to grow.
by DR ADENIYI BAMGBOYE