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PAYE for Employers in Nigeria: Your Complete Obligations Under the NTA 2025

Taxidy
10 min read
PAYE for Employers in Nigeria: Your Complete Obligations Under the NTA 2025

If you run a business in Nigeria and have people on your payroll, PAYE is one of your most serious monthly obligations. Under the Nigeria Tax Act 2025, which took effect January 1, 2026, the rules around how employers calculate, deduct, and remit PAYE have changed significantly. The penalties for getting it wrong are steeper than ever. This article covers everything you need to know as an employer, from how to calculate PAYE correctly to what happens if you miss a remittance.

Quick Summary

  • PAYE must be remitted by the 10th of every month — covering deductions from the previous month's salaries
  • The annual PAYE return is due January 31 — this is separate from your monthly remittances and mandatory even if all payments were made on time
  • Failure to deduct PAYE at all attracts a 40% penalty — on the amount that should have been deducted
  • Late remittance attracts 10% plus CBN MPR interest — on top of the original amount owed
  • The definition of "employer" is broader than most people think — it covers full-time staff, part-time workers, contractors, consultants, and vendors receiving compensation
  • The old CRA formula is gone — any employer still using the Consolidated Relief Allowance from the old PITA is calculating PAYE incorrectly

If you run a business in Nigeria with people on your payroll, here is something worth sitting with for a moment.

When you deduct PAYE from your employees' salaries every month, that money is not yours. You are holding it on behalf of the government. It belongs to the Nigeria Revenue Service or your State Internal Revenue Service the moment it is deducted. Using it for operations while it sits in your account, delaying remittance because cash flow is tight, or simply forgetting to send it — all of these create a liability that compounds quickly.

The Nigeria Tax Act 2025 made this clearer and the consequences stricter. As of January 1, 2026, penalties for PAYE non-compliance are higher, enforcement is more active, and the NRS now has AI-driven tools to cross-reference payroll records against bank account inflows and employee tax filings. The era of quietly getting away with delayed remittances is over.

Here is everything you need to know to stay on the right side of this.

Who Counts as an Employer Under the NTA 2025

Before getting into the mechanics, it is worth clarifying who this applies to because the definition is broader than most business owners assume.

Under the NTA 2025, an employer of labour is any individual or organisation that pays compensation to natural persons for services rendered. This goes beyond full-time employees on a permanent contract. It covers part-time workers, temporary staff, contractors working regularly for your business, and consultants receiving compensation from you.

If you pay someone regularly for services rendered and they are not running their own registered business separately, the tax authority may treat that relationship as an employment relationship and hold you responsible for PAYE on those payments.

This matters particularly for small businesses that engage freelancers or contractors on a recurring basis. If someone has worked with you for months, receives a regular monthly payment, and works exclusively for your business, the NRS may classify that arrangement as employment regardless of what you call it in a contract.

How to Calculate PAYE Correctly Under the New Rules

The calculation has changed since January 1, 2026. If your payroll software or accountant has not been updated to reflect the NTA 2025, every calculation from January 2026 onward is wrong.

Here are the steps your payroll must follow for each employee.

Step 1: Establish gross income

Your employee's gross income includes basic salary, housing allowance, transport allowance, and any other regular cash allowances. Irregular bonuses are only included if the employment contract specifies they form part of taxable emoluments. Benefits in kind, such as a company car or accommodation provided to the employee for personal use, are valued at 5% of the asset's cost per year and added to taxable income.

Step 2: Subtract the pension contribution

The employee's 8% pension contribution is deducted from the sum of basic salary, housing allowance, and transport allowance. This reduces the income on which tax is calculated. Your employer contribution of 10% is paid separately from your own funds and does not come out of the employee's pay.

Step 3: Subtract any eligible reliefs the employee has claimed

If the employee has submitted a tenancy agreement and rent payment receipts, you deduct 20% of their annual rent from their chargeable income, capped at ₦500,000. If you run NHIS or NHF schemes, those contributions are also deducted before tax is calculated. These reliefs only apply if the employee has actively claimed them in writing and provided the required documentation.

Step 4: Apply the annual tax rates to what remains

Whatever income remains after the above deductions is the employee's chargeable income. Apply the following annual progressive rates:

  • The first ₦800,000 is taxed at 0%
  • The next ₦2,200,000 is taxed at 15%
  • The next ₦9,000,000 is taxed at 18%
  • The next ₦13,000,000 is taxed at 21%
  • The next ₦25,000,000 is taxed at 23%
  • Anything above ₦50,000,000 is taxed at 25%

Divide the resulting annual tax figure by 12 to get the monthly PAYE deduction.

Step 5: Deduct the PAYE from the employee's net pay and record it

Keep a clear record for each employee showing their gross income, all deductions, their chargeable income, and the PAYE amount. This records trail is what protects you during an audit and what you use to complete your annual return.

You can read more about the correct tax calculation structure in our article on what changed under the Nigeria Tax Act 2025.

Manually calculating PAYE for multiple employees under the new NTA 2025 rules is time-consuming and error-prone. Taxidy is building a platform that automates this so your payroll is always accurate and compliant.

Your Monthly Remittance Obligation

Once you have deducted PAYE from your employees' salaries, you have until the 10th of the following month to remit the total amount to the relevant State Internal Revenue Service. This deadline is based on when salaries are paid, not when the month ends.

So if you pay salaries on the 25th of every month, the PAYE deducted from those salaries is due at the State IRS by the 10th of the following month. If you pay salaries on the last day of the month, the same rule applies. The 10th is the hard deadline.

Where you remit depends on where your employees are based. Lagos employees remit to the Lagos Internal Revenue Service through the LIRS eTax platform at etax.lirs.gov.ng. Abuja employees remit to the FCT Internal Revenue Service at irs.fct.gov.ng. Each state has its own portal and you should confirm the correct one for each state where you have employees.

If you have employees in multiple states, you remit to each state separately based on where each employee is located, not where your head office is.

Your Annual PAYE Return Obligation

The monthly remittances are not your only PAYE obligation. Every January, you must also file an annual PAYE return covering all salaries paid and all PAYE deducted across the previous year.

This return is due by January 31st. It must include the name and Tax Identification Number of every employee, their gross compensation, the tax deducted from each of them, their net pay, and evidence that the remittances were made. The January filing is about disclosure and reconciliation, not an additional payment. Even if you made every monthly remittance correctly and on time, you are still required to file the annual return.

Manual filing was discontinued in 2022. All returns must now be submitted electronically through the relevant State IRS portal. For Lagos employers that is the LIRS eTax platform. The system cross-checks your annual return against your monthly remittances. Discrepancies trigger audits.

What Happens If You Get It Wrong

The penalties under the Nigeria Tax Administration Act 2025 are structured to make non-compliance more expensive than the tax itself.

If you fail to deduct PAYE when you were required to, the penalty is 40% of the amount you should have deducted. This is in addition to the original PAYE liability. The penalty is calculated on the full amount that should have been deducted, not on the portion you missed.

If you deduct PAYE but remit it late, the penalty is 10% of the amount not remitted, plus interest calculated at the prevailing Central Bank of Nigeria Monetary Policy Rate until the debt is fully cleared.

If you fail to file the annual PAYE return by January 31st, the penalty is ₦100,000 for the first month of default and ₦50,000 for every subsequent month the return remains unfiled. This applies even if all your monthly remittances were made correctly and on time.

If the NRS discovers during an audit that you have been systematically non-compliant, the consequences go beyond financial penalties. Under Section 127 of the NTAA, an employer who contravenes the provisions of the Act is liable to an administrative penalty of ₦1,000,000 or on conviction, to imprisonment for a term not exceeding three years, or both.

What the NRS Can Now See

One thing every employer needs to understand about the 2026 enforcement environment is that the NRS now has significantly more visibility into your business than it did before.

The NRS has deployed AI-driven tools that cross-reference declared payroll figures against bank account inflows. If your payroll records show you paying staff a certain amount but your bank statements show significantly higher outflows to individuals, that discrepancy will be flagged. The same cross-referencing happens between your monthly PAYE remittances and your employees' individual tax filings. If your employees file personal returns showing higher income than your payroll records declare, you will receive a query.

This is why accurate record-keeping is not just good practice. It is now genuinely necessary for any employer who wants to avoid being caught in an audit with inconsistent numbers.

A Practical Checklist for Every Month

Set a reminder on the 5th of every month as a trigger to process payroll compliance before the 10th deadline. Here is what to check:

Calculate the PAYE for every employee using the NTA 2025 rates. Confirm you have applied the pension deduction before calculating tax. Confirm any rent relief claims have been applied for employees who have submitted documentation. Total up all PAYE deductions across your entire payroll. Log into the relevant State IRS portal and complete the remittance before the 10th. Download and save the remittance receipt. Update your payroll records to reflect the payment.

For January each year, add one more item to this checklist: file the annual PAYE return covering the full previous year by January 31st.

Our Nigeria tax calendar for 2026 has every deadline mapped out for you with reminders built in so nothing slips.

If You Have Fallen Behind

If you have been deducting PAYE but not remitting, or if you have not been deducting at all, the best course of action is to regularise your position before the NRS contacts you. Voluntary disclosure and payment of arrears, while still subject to penalties and interest, is treated more favourably than compliance triggered by enforcement action.

Speak to a registered tax consultant who can calculate your total exposure, negotiate with the relevant State IRS on a payment plan if needed, and help you file the correct returns to clear the backlog.

The longer you wait, the larger the penalty liability grows. The 40% non-deduction penalty and the monthly ₦50,000 accumulation on late annual returns compound quickly.

Taxidy is building the platform that makes PAYE compliance straightforward for Nigerian employers. Calculate the right deductions, track remittances, and stay ahead of every deadline. Join the waitlist to be first when we launch.

Taxidy is built by Nigerians who understand exactly how confusing this system is.

Sources: Nigeria Tax Act 2025, Sections 4, 26, 30. Nigeria Tax Administration Act 2025, Sections 13, 14, 101, 127. PwC Nigeria Tax Administration Summary 2026. Legit.ng, What Nigeria's New Tax Laws Mean for Employers, January 2026. SmartSMS Solutions, PAYE Remittance Deadlines Nigeria SMEs, January 2026. Safeguard Global, Nigeria Tax Act 2025 Goes Into Effect, June 2026. Edo State Internal Revenue Service, Notice of Demand for Employers, February 2026.

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