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Financial Literacy

What to do with all the withholding tax deducted from your invoice!!!



What is capital allowance

Withholding Tax is often  viewed erroneously as a separate form of tax. Withholding tax is basically an advance payment of  income tax, rather than a separate form of tax itself. As the Federal Inland Revenue put it; “Withholding tax is not a separate type of tax but a payment on account of income tax and it is available as set-off against tax assessment of relevant period”.

A typical example is that you invoice your customer N1m for goods supplied. Rather than pay you N1m, your customer pays you N950,000, therefore withholding N50,000. The N50k withheld by your customer is now paid on your behalf to the tax man (FIRS). After payment to the FIRS he is issued a Withholding Tax Credit Note ( a receipt showing proof of payment). As a confirmation that your customer has paid the N50k on your behalf, you must obtain a copy of the Withholding Tax Credit Note from them. Without it you have basically just dashed the customer N50,000 of your money.  So, it is either you are given the credit note or refunded your N50,000 cash. Because of the tendency of companies not to pass on withholding tax credit notes to suppliers or even remitting the amount to the FIRS, some suppliers tend to gross up their invoice.

How to gross up invoice?

As in the example above, for the supply that is worth N1m, they charge the customer anything slightly above 5% of your actual selling price. So, rather than invoice N1m you invoice N1,060,000 which is 6% more than your actual amount. What will follow, is that your customer will deduct 5% of the N1,060,000 thus paying you N1,007,000. Which is not below the N1m price. In fact it leaves you with a room to even give a discount of N7,000 if you wish.

What to do with the Withholding Tax Credit Note

At the end of the financial year, your withholding tax credit note will be gathered and presented to the tax man. It is expected that by then, he would have told you how much tax you are liable to pay for that year. I will use the scenarios  below to illustrate how you can use the credit notes to offset your taxes.

Scenario 1 : That your tax liability is N1.5m and you have a Withholding Tax Credit Note of N1m?

Implication: You will now only have to pay to the tax man N500k (N1.5m – N1m). That is the N1.5m that is your tax liability less the N1m that you had already paid in advance during the course of the year as your customers deduct from your invoices. You must provide the receipts totaling N1m to claim this offset.

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Scenario 2: That your tax liability is N600k and you have a Withholding Tax Credit Note of N1m?

Implication You will not pay the tax man any money because you had paid N1m in advance during the year which is N400k (N1,000,000 less N400,000) more than the amount you are liable for in the financial year. Meaning you indeed have to your credit a sum of N400k to receive from the tax man. However, the FIRS(Tax Man) does not pay you cash for the credit that is due, rather they carry it over to the next year and use it to reduce future tax liabilities. Thus, in the example above, the N400k will not be paid to you immediately but carried over to the next year.

Scenario 3. You do not have any tax liability?

Implication:You will only carry forward all the credit you have for subsequent deduction from future years when you have a tax liability. Meaning your N1m will simply be carried forward. You will not be refunded the N1m cash (which is what the guideline currently stipulates).

Withholding Tax is a very lucrative way for the tax man to ensure more people pay taxes. It is designed in such a way that every one is dragged into the tax net. It is collected by both the state and local governments. Companies registered as a Limited Liability Company will take their Withholding Tax Credit Note to the FIRS whilst companies registered as a Partnership or Sole Proprietorship will take their’s to the State Inland Revenue Service (In Lagos, it is the LIRS). Partnership and Sole Proprietorship are typically viewed as “Individuals” in the eye of the tax man. The following is a table showing various rates of Withholding Taxes.

Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market. Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.



  1. Anonymous

    October 30, 2011 at 4:20 pm

    Indeed a wonderful mechanism for collecting tax in advance from Taxpayers.

  2. Anonymous

    October 31, 2011 at 10:59 am

    Whats the Simple diffrence between Withholding Tax and VAT.

  3. Ugodre

    October 31, 2011 at 1:55 pm

    Hi,In simple terms Withholding Tax is an advance payment of tax. It is basically paying part of your income tax in advance. VAT is an indirect tax that you pay whenever you purchase certain good or services. Whilst you pay, you also help the government receive when people pay you for goods and services you sell as you charge them 5%.

  4. 100000314155805

    June 12, 2013 at 10:35 am

    This is very educative.

  5. Ibiyemi a.g.

    June 17, 2016 at 7:24 pm

    Please confirm if credit notes carried forward can elapsed due to excess credit notes over tax liabilities for few years

  6. Buzz

    January 17, 2017 at 12:19 pm

    Ugo you are king!

  7. Anonymous

    February 27, 2017 at 11:43 am

    Wao…I hv learnt a lot via this

  8. Abdul Bamgbopa

    April 26, 2019 at 8:24 am

    This analysis of WHT to current CIT appears not to be what currently applies. What we have experienced is that the tax man will say we cannot use current WHT to offset the CIT of same period but only of prior years. So after statutory audit of say 2018 FY, the CIT comes to N1m and in same period there is WHT of N1.5m, what we have been experiencing is that we can only use WHT of 2017FY and before to offset the CIT for 2018. It will be great to have more clarity on this. Also, we often tend to forget the 2% Edu Tax as compulsory and it cant even be offset by WHT. It will also be great to shine some light on that.

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Personal Finance

10 Business mistakes to avoid post-COVID-19

With the emergence of lockdown and social distancing, businesses are now incorporating innovative working arrangements.



The "new normal" in business and economy

Not only did COVID-19 spread globally, it also stopped all activities in almost every sphere of human endeavour.

Apart from the fact that the pandemic affected many lives, it also brought about a great disruption in the business sector.

SMEs and large enterprises have experienced various forms of contractions, and this has led to business closure for some. Many companies thrived on an existing modus operandi and were not prepared for the impacts of the pandemic. However, with the emergence of lockdown and social distancing, businesses are now incorporating innovative working arrangements like remote working, online services as well as regular variation in shifts.

READ MORE: 3 major ways COVID-19 will affect Banks’ 2020 profits

While the pandemic is still being brought under control, a new order of business operations has been established and going forward, businesses must carefully plan and think out ways to thrive.

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While planning on how to navigate the whole situation carefully, it is advisable to take note of certain mistakes that could hinder their progress.

This article provides for you ten (10) mistakes you should avoid making in your business post-COVID-19.

READ ALSO: Rewane outlines sectors to drive economy in 2020 

1. Not having an online presence

The pandemic brought a halt to movement and large gatherings, and this stopped many businesses that existed mainly on physical interactions to stop and pack up. Business owners must learn that it is a huge travesty to plan their strategy without having an online presence; in fact, they would be missing a lot. They must strategically think of going digital and maximize the opportunities that come from interacting with over 4.5 billion people.

2. Limiting the business vision

The pandemic has pushed heads of enterprises to a position of mere survival. Plans and decisions are being made just for the moment without considering the long term existence of the business. Every business started off with a mission, a set of objectives to achieve and needs to meet. Regardless of the economic transition, it is important to hold those goals in mind while constantly seeking ways to attain them.

3. Poor marketing strategy

With the emphasis placed on marketing, especially on digital marketing lately, and the importance it holds for any business, it is not only a mistake for an establishment to limit its marketing strategies but a business taboo as well. Many products and services have emerged during the pandemic which poses competition to already existing providers. It is a necessity to brush up the marketing game in order to gain relevance in the business sector and source for more leads as well.


4. Building on hope

Optimism is good, but planning is better. We are moving into an era of intense technological integration which has influenced various business operations. E-commerce, as well as remote working, has become a norm and businesses will have to move with the flow. There are quite a number of entrepreneurs who are waiting for the tides to calm so they can paddle their boats. The trick is in planning while waiting. It is okay to place one’s bet on hope but mapping out plans for sustenance is more advantageous.

5. Unplanned redundancy

It will seem like the way out for most enterprises to lay off some of their workers in order to survive the disastrous financial situation they may experience. However, one key factor in adopting this strategy is to carefully examine the effect it might have on the growth of the business. Over time, there might be a need to hire new workers which will incur a cost in recruiting and training new employees. Low man-power influences productivity. As such, measures must be put in place to make up for the labour pool that will be cut off.

6. Pouring new wine in old wineskins

Innovation has been on the rise on account of the pandemic. New commercial and industrial techniques are sprouting paving the way for longevity. Holding onto old and familiar methods that are no longer effective could constitute a big mistake for any business. Entrepreneurs and managers have to embrace the reality that comes with post-COVID-19 with a sense of focus.

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7. Ill-suited rigidity

Flexibility is one of the keys to thriving after the transition. Understand that the pandemic has affected the world economically and otherwise. Hence, it is crucial to adapt to the changes by inculcating new plans, being versatile and multifaceted rather than being inappropriately unbending.

8. Neglecting creativity

Neglecting the power of creativity is a costly mistake every business should avoid making. The post-COVID-19 period will be a salient time to be creative and innovative. Establishments should be on the lookout for how to meet the needs of consumers, ways to improve their services in order to stay in vogue. Teachers are resorting to virtual classrooms; traders are integrating e-commerce; companies are investing in work-from-home technology. It is all about creativity.

READ ALSO: The “new normal” in business and economy

9. Ineffective communication

With much regards given to remote work and other emerging working arrangements, it is important to devise means to ensure effective discharge of duties by members of any business. The ineffective flow of communication can retard the growth of businesses which is one of the mistakes to avert. When workers understand that it takes collective effort to ensure the continuity of the business, it becomes easy for them to efficiently invest their energy.

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10. Poor assessment

Disregarding the place of systematic evaluation of the performance of any enterprise is one of the business mistakes to avoid post-COVID-19. There should be a feasible assessment carried out to ascertain where the business stands in terms of labour force, expenditures, cash flow and returns on investment.

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Conclusively, there is no green light as to whether a post-COVID-19 will exist or not. However, as the virus lingers, each business owner must adjust to make sure they do not make the above-mentioned mistakes or other possible business mistakes that may not have been mentioned in this article.

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Financial Literacy

Five things to consider before securing a loan

It is important to consider these five tips before securing a loan.



Financial security is when you know you do not have to worry about the basic needs of life. It also involves having the courage to comfortably withstand any emergency life throws your way.

The outbreak of COVID-19 was unexpected. Apart from the health implications it caused, the global economy has suffered greatly.

The outbreak of the virus resulted in job losses and business closure. The situation is so worse that even stable sources of income are no longer guaranteed.

As a result, many people have had to reduce their expenses, and the need to seek loans to enable sustainability or survival is on the rise.

While many may consider taking loans to meet their current needs, here are five (5) tips on what to consider before taking that step.

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1. The lender

With different financial institutions willing to offer loans, it is crucial to find the right lender. At a critical time, such as this, securing a loan can come at significant risk and cost. It is, therefore, essential to get it from a source that will provide acceptable terms. It could be from a friend, family, community fund or a microfinance bank. Ensure you secure the loan from a lender willing to give you the best possible conditions and a well laid out repayment plan.

2. Do Your Homework

Research is key. Do your homework and be well informed about it. Ensure you have a realistic means of repayment. Look at the viability of the loan and ensure that you have a realistic chance of paying back on its due date.

3. Work Out Your Payment Plan

Many focus on planning on how to spend a loan and determining how much they need to secure. While this is essential, it is equally important to plan on how you will repay a loan. It would be best if you decide whether you will be paying on a weekly or monthly basis. These factors will guide you in choosing a loan with favourable payment terms to avoid unplanned costs.

4. Credit History

Having a good sense of your credit history is also very important. Know your cash flow and be sure of your income and expenses. Know the precision in terms of what you can get and when you can get it, so as to draw up an excellent and reasonable payback strategy.

5. Terms and Conditions

Ensure you read the fine print and understand the various terms and conditions of a loan before signing any legally binding documents, including a personal loan agreement. In some instances, you may find it difficult to understand certain things regarding the loan you are about to secure. Try as much as possible to clarify all doubts before taking the final decision.

Financial strain may not be the sole purpose of taking a loan. However, whatever the reason may be, it is crucial to consider these five tips before securing one.


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Personal Finance

10 things to adopt in your business to adjust to the new normal

As scary as the thought might be, the new normal might last for a very long time.



Nairametrics Financial literacy, invest intelligently, portfolio diversification, treasury bills, Your next of kin, or not?, Investing in uncertain times, Things to accomplish during COVID-19 lockdown

Towards the end of 2019, many businesses wrote their plans, strategies and goals for 2020 and were ready to dominate the market. However, the year did not start as many thought it would. The COVID-19 pandemic brought about new ways of doing things, which is now known as the ‘new normal’.

As scary as the thought might be, the new normal might last for a very long time. Therefore, businesses need to find a balance between what worked in the past and what needs to be done to adjust to the new normal. While some businesses were forced to shut down, many businesses had to change their strategy in order to adjust to the new normal.

Any business can survive the pandemic and adjust to the new normal just by pivoting to a new business strategy. As a business owner, you have to think about growth and look for methods you can adopt in your business to adjust to the new normal and remain relevant. Keep reading to discover ten (10) things you can adopt in your business to adjust to the new normal.

1. Accept the changes 

The first and most important thing to do for your business to adjust to the new normal is to accept the changes and embrace the new normal. Waiting for things to go back to normal before you continue your business is the wrong move because things might never go back to the way they were.

2. Think Technology 

Innovation and the use of technology in businesses have been on the rise, before the pandemic. Technology is the future of the business world. The latest trend since the pandemic started is to replace manpower with technology. With this, the business continues without endangering the lives of the employees.

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3. Change your business model

Reinvent your business, align your business strategies with society’s changing needs and develop a low-cost business model that would help you to stay in business while delivering your best.

4. Involve your employees

The business world has reached a level where you have to involve your employees in the decision-making process. This gives them a sense of responsibility and makes them more involved in the growth of the organisation. Involving your employees will help the business to adjust well and experience growth.

5. Focus on your customers 

Listen to your customers. Make an effort to meet their increasing demand and take advantage of their changing attitudes and behaviour. You can do this by conducting a survey and requesting feedback. This is the best time to conduct market research and get all the information you need. This way, you would know if you are on the right track.

6. Stay connected

Transitioning from the current state (Covid-19) to recovery state (Post Covid-19) requires staying connected to the outside world. The question; ‘what is working or not working for other businesses?’ should be asked as often as possible.

7. Adopt a mobile strategy

Since the beginning of the pandemic, the majority switched to remote working, which might have brought about a reduction or lack of communication for some businesses. Business owners should work on their communication system during this period by employing a mobile strategy to get employees up and running.

8. Focus on advertisement and marketing

To cut costs, many businesses are cutting their advertising and marketing budgets, so any business that focuses on advertising and marketing will get all the attention it needs now.


9. Collaboration, flexibility and accountability

The best time for flexibility, collaboration and accountability in business is now. Adopting systems such as informal interactions and remote work would help build a flexible, accountable and better workforce. Not only will this make your employees happy, but it will also give your business the exposure it needs.

10. Risk management systems

Businesses should take advantage of this opportunity to set up a risk management system. The pandemic is enough enlightenment for businesses to know that they should put measures in place to identify, assess, monitor and mitigate the impact of risk on their business in future.

If your business has been affected by the pandemic, you can get back on your feet and begin to break new grounds. All you have to do is adjust your business to the new normal by thinking differently and being strategic in all dealings.

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