Pay As You Earn (PAYE) is the mechanism by which employers deduct personal income tax from employees' salaries and remit it to the relevant tax authority. It is one of the most closely monitored obligations for any employer in Nigeria, and under the Nigeria Tax Administration Act, 2025 (NTAA), the penalties for getting it wrong have increased. This article sets out how PAYE remittance works and what employers should check.
How it works
An employer deducts income tax from each employee's salary based on the applicable personal income tax bands and reliefs, then remits the total deducted to the relevant State Internal Revenue Service (for most employees) or, for specified categories, the NRS. Alongside monthly remittance, employers must file an annual return (Form H1) summarizing total emoluments paid and tax deducted for each employee during the preceding year.
Important note on the remittance deadline: published guidance is not fully consistent here. Many practical guides state that monthly PAYE remittance is due by the 10th day of the month following deduction. However, Section 107 of the Nigeria Tax Administration Act, 2025 refers to a 21st day deadline, after which penalties for non-remittance apply — aligning it with the VAT and withholding tax filing deadline. Employers should confirm the applicable deadline directly with their State Internal Revenue Service before relying on either date.
Penalties for non-compliance
Based on the NTAA:
- Section 105: a person required to deduct, collect or withhold tax who fails to do so is liable to an administrative penalty of 40% of the amount not deducted.
- Section 107: where tax is deducted but not remitted by the applicable deadline, the employer remains liable for the outstanding tax, plus an administrative penalty reported at 10% per annum, and interest at the prevailing Central Bank of Nigeria Monetary Policy Rate.
- Section 101: failure to file returns, or filing incomplete or inaccurate returns, attracts a penalty of ₦100,000 for the first month and ₦50,000 for each subsequent month of default.
- Some state guidance references a further penalty of up to ₦1,000,000, or imprisonment for a term not exceeding three years, for contraventions of the NTAA's employer obligations.
Why this matters to taxpayers
PAYE compliance is not solely a company risk; it also affects individual employees, since their tax records depend on accurate employer remittance. For the business itself, published commentary notes that the increased penalty regime under the NTAA has made the cost of non-compliance higher than the cost of maintaining proper payroll systems.
Tax implications
- Deducted but unremitted tax remains a liability of the employer, in addition to any penalty and interest charged.
- Failure to deduct at all attracts a penalty calculated on the full amount that should have been deducted, not merely the shortfall.
- Late annual returns (Form H1), typically due by 31 January, can attract separate penalties from monthly remittance failures.
- Interest compounds where remittance is delayed over multiple months, since it is tied to the CBN Monetary Policy Rate.
Step by step: how to stay compliant
- Calculate PAYE correctly each month, using the current personal income tax bands and applicable reliefs (pension, NHF, NHIS, rent relief).
- Confirm the applicable remittance deadline with your State Internal Revenue Service, given the discrepancy noted above.
- Remit the full amount deducted promptly, rather than only a portion.
- Keep a monthly PAYE schedule listing each employee and the tax deducted, as supporting documentation.
- File Form H1 by the annual deadline, typically 31 January, summarizing the prior year's emoluments and deductions.
- Register new employees promptly using the relevant notification form, and process exits using the corresponding disengagement form.
- Reconcile payroll records against remittance receipts regularly, not only at year-end.
- Respond promptly to any notice or demand from the tax authority regarding outstanding filings.
Why engage a professional consulting firm
- Deadline clarity. A professional can confirm the correct, current remittance deadline applicable to your state and category of employee.
- Accurate computation. PAYE calculations under the reformed bands, with correct application of reliefs, reduce the risk of under or over-deduction.
- Penalty avoidance. Given the increased penalty regime under the NTAA, timely and accurate payroll processing carries a materially higher value than before.
- Multi-state coordination, for employers with staff resident in different states, each with its own filing relationship.
Why every business should comply
PAYE compliance protects both the business and its employees. For the business, it avoids penalties that, under the current regime, can reach a significant proportion of the tax involved. For employees, accurate PAYE deduction and remittance ensures their tax records are correct, which can matter for loan applications, visa processes and other situations where tax compliance history is checked.
Tips for smoother PAYE compliance
- Automate payroll calculations where possible, to reduce manual computation errors.
- Track each employee's state of residence, since PAYE is generally remitted to the state where the employee resides, not necessarily where the business operates.
- Set a recurring reminder ahead of the monthly remittance deadline, whichever is confirmed applicable.
- Retain remittance receipts and schedules for the statutory retention period.
Relevant law
- Nigeria Tax Administration Act, 2025, Sections 101, 105 and 107 (returns, penalties for failure to deduct, and penalties for failure to remit)
- Nigeria Tax Act, 2025 (personal income tax bands and reliefs underlying PAYE computation)
Frequently asked questions
Is the PAYE remittance deadline the 10th or the 21st of the month? Guidance is inconsistent. Confirm the current applicable deadline directly with your State Internal Revenue Service before relying on either date.
What happens if I deduct PAYE but forget to remit it? The employer remains liable for the outstanding tax, along with an administrative penalty and interest under Section 107 of the NTAA.
What is Form H1? It is the annual return summarizing total emoluments paid and PAYE deducted for each employee during the preceding year, typically due by 31 January.
Which authority do I remit PAYE to? Generally the State Internal Revenue Service where the employee resides, except for specified categories of employee who fall under NRS administration.
Can penalties apply even if the error was unintentional? The NTAA's penalty provisions apply to failure to deduct, collect or remit tax, and to incorrect returns, regardless of intent, so accuracy and timeliness matter regardless of the reason for an error.
Where you need further assistance: You may contact US & CO. (Chartered Accountant), a professional tax consulting firm in Lagos, Nigeria. 📞 WhatsApp: 08056219998 📧 Email: info@usc.com.ng 🌐 Website: https://www.usc.com.ng
Footnote: This article is for general information only. It is not complete investment, tax or legal advice. The remittance deadline referenced in this article should be confirmed with the relevant tax authority, as sources are not fully consistent. Readers should consult a qualified professional before making any investment or tax decision.
