crownboss: @Jarus and Aqva

Please I presently work for a small consulting firm and I have been with them for approx. 3 years now but the problem is although PAYE tax is deducted from my salary every month I have never received a tax clearance from the company within these years. When i querried the Accountant he said the reason why they don't apply for individual staff tax clearnace is because what is being deducted from our salary as PAYE is very little compared to the actual amount. Please i would like your assistance in knowing my actual PAYE from the detail below because i want to ask the company to start deducting the actual PAYE and get me my tax clearnce.

Basic salary: 36,000.00
Housing allowance: 30,000.00
Medical allowance: 24,000.00
Dressing allowance: 15,000.00
Training allowance: 15,000.00
Total 120,000

crownboss: @Jarus and Aqva

Please I presently work for a small consulting firm and I have been with them for approx. 3 years now but the problem is although PAYE tax is deducted from my salary every month I have never received a tax clearance from the company within these years. When i querried the Accountant he said the reason why they don't apply for individual staff tax clearnace is because what is being deducted from our salary as PAYE is very little compared to the actual amount. Please i would like your assistance in knowing my actual PAYE from the detail below because i want to ask the company to start deducting the actual PAYE and get me my tax clearnce.

Basic salary: 36,000.00
Housing allowance: 30,000.00
Medical allowance: 24,000.00
Dressing allowance: 15,000.00
Training allowance: 15,000.00
Total 120,000

Fixed: Hi Jarus, A friend has an issue at hand as we speak. Your urgent advice will be appreciated.

My friend is into frozen foods business of which year 2012 turnover is about Eight Million naira. Though the business is registered as an enterprise (not a company), he uses his personal account for business transactions as he is yet to open an accountfor the business. Actually, the business name registration was done not too long ago.

Three weeks ago, he received a letter from FIRS to pay the sum of N75 Million being the accumulated tax covering a period that the business had not even been thought of. Mind you the letter was addressed to the actual business name which had just been registered. Now the man in charge of the tax office that sent the letter had persistently called my friend to come and 'settle the matter' with the sum of N60,000 like others did and there was no receipt issued whatsoever for the payment.

My Questions:
1. How is tax calculated for businesses that are registered as an enterprise? Please bear in mind that the books of account are largely informal where they exist at all. They had actually requested in the letter that statements of accounts and other records be brought for correct calculation of tax arrears
2. Are sales of fish and other frozen food items taxable? Don't they come nder basic food items or Agric items which are exempted according to your earlier post?

3. Is it wise to report this station manager to his superior for fraudulent conversion of remittances in the name of 'settlement'?
4. Generally, how doyou think the issue should be approached?

My friend had just received another letter stating that his business will be shutdown and the process of winding down would commence if a response is not received in 7 days!

Thanks bro.

Jarus:
Your actual PAYE, based on new Personal Income Tax Act (PITA) which took effect June 2012, is calculated thus:

GROSS ANNUAL PAY= 120,000*12 = 1,440,000
Less Reliefs & Allowances
- Pension 7.5% of Annual Basic, Housing & Transport = 792,000*7.5% = 59,400
- Consolidated Relief Allowance = 200,000+ 20%*1,440,000 = 488,000
NB: Monetised medical allowance is not accepted as a relief

TAXABLE PAY = Gross pay - Reliefs = 1,440,000 - 59,400 - 488,000 = 892,600

TAX

First 300,000 @ 7% = 21,000
Next 300,000 @ 11% = 33,000
Remainder 292,600 @ 15% = 43,890

TOTAL ANNUAL TAX = 97,890
Monthly Tax = 8,157.50

NOTE: I converted to annual, did the calculation in annualized figures, and reconverted to monthly, because I don't have time to be dividing by 12 at every stage. The relief and tax rates are stated in annual terms. It will result in same thing, except for months you earn extra income like christmas bonus, 13th month etc.

Meanwhile, your company is only postposing evil day. It can't escape the tax. When the authorities come and carry out audit, they will not only recover at actual rate, but also impose penalty and interest, which, together, can be up to 31%. For a small company, this can hit his P&L seriously in the year of audit, except he has been making provision.

Malubi: PAYE is charged only on your basic salary using a certain pecentage i.e. In government mostly is 2% of the basic, I dont know of private organisations. Thanks

poshdiva: @Jarus don't you think the guy should first write a letter to the board in charge of hearing tax issues to appeal against his assessment. I think there is a provision in the FIRS Act that deals with assessment appeals where the tax payer feels his assessment is incorrect or exorbitant.

Aqva: @ fixed
When a company is registered and operates business but refuses to register, the taxman will use what is called best of judgement, BOJ to estimate tax payable based on turnover and estimate commencement yr. As an enterprise what was calculated was VAT due.
For the FIRS guys to have said tax due was abt 75mil, they probably calculated tax due using a compounded formula, therefore its not just 5k as penalty for failing to file returns but you pay higher than 5k for every mnth the failure to file VAT returns continues. Therefore, 5k for 1st mnth, 10k for 2nd mnth, 15k for 3rd mnth etc. Using this harsh formula is at the discretion of the taxman, otherwise penalty is 5k per mnth for failing to file returns. Therefore the assessment does not just comprise of VAT due based on turnover but also comprises of accumulated interest and penalty over the period returns wasn't made that's why the figure is so high.

Selling fish is taxable since u are offering a service as d fish is processed and marketed. It's different from being a fish farmer. However an enterprise doesn't pay CIT but pays VAT.
My advice is for every business owner to register with the tax agency after registering d business , file ur tax returns as nil every mnth even if u have not started making any sales but have commenced business. It will save u d wahala of greedy and merciless taxmen.

Jarus:
Yeah, but that's too far/early at this stage in my opinion. You appeal after you reach a deadlock. He hasn't even had any meeting the officers.

demmix:

He should write to them immediately contesting the assessment as any assessment notice is deemed to be final and conclusive if it is not contested within 30 days of the receipt of such notice. After then, his appeal is baseless.

Fixed: Hi Jarus, A friend has an issue at hand as we speak. Your urgent advice will be appreciated.

My friend is into frozen foods business of which year 2012 turnover is about Eight Million naira. Though the business is registered as an enterprise (not a company), he uses his personal account for business transactions as he is yet to open an accountfor the business. Actually, the business name registration was done not too long ago.

Three weeks ago, he received a letter from FIRS to pay the sum of N75 Million being the accumulated tax covering a period that the business had not even been thought of. Mind you the letter was addressed to the actual business name which had just been registered. Now the man in charge of the tax office that sent the letter had persistently called my friend to come and 'settle the matter' with the sum of N60,000 like others did and there was no receipt issued whatsoever for the payment.

My Questions:
1. How is tax calculated for businesses that are registered as an enterprise? Please bear in mind that the books of account are largely informal where they exist at all. They had actually requested in the letter that statements of accounts and other records be brought for correct calculation of tax arrears
2. Are sales of fish and other frozen food items taxable? Don't they come nder basic food items or Agric items which are exempted according to your earlier post?

3. Is it wise to report this station manager to his superior for fraudulent conversion of remittances in the name of 'settlement'?
4. Generally, how doyou think the issue should be approached?

My friend had just received another letter stating that his business will be shutdown and the process of winding down would commence if a response is not received in 7 days!

Thanks bro.

teexzle: Hello every1,
@jarus please I need a lil help here, I undastand one has to file a statement of affairs for a newly registered company, pls can u help with how one looks like and other procedures to gettn it done, the coy has not statd biz bt it will attain 18mths of incorporation by march 14..so ths is very urgent pls

folu500: Pls house can anyone enlighten me on the process of filling and recovering losses incured in previous years. Am talking of a financial advisory firm.

folu500: Pls house can anyone enlighten me on the process of filling and recovering losses incured in previous years. Am talking of a financial advisory firm.

Jarus:

Only a professional accountant can prepare one for you. But to cover your track before deadline, write a letter for FIRS, that you are currently preparing your statements of affairs, that you will forward to them when ready.

teexzle: Ok thanks,can u do this for me, I undastand preparn a statement of affairs doesn't take time.

nitrogen:

Dear Folu500,

Your question is not that clear, is it that you want to recover or relief your previous years losses so your tax liability is reduced? If it is the latter, then it is set off against your adjusted profit, (before deducting capital allowance- which is limited to two-third of the assessable profit),meanwhile, your loss can only be carried forward for four years.

NB: Losses brought forward can only be set-off against income from the same source from which the loss was incurred originally.

I hope this settles it, if not, then you need to be more elaborate.

Thanks.

Jarus: I work as Tax Accountant in a company in Lagos.


Let's share ideas and knowledge and discuss issues taxation here - from students to professionals.

Other tax professionals are also invited to give people advices and answer questions.

Aqva: Tax is a complex profession, it's difficult to knw it all with all the CIT, VAT, WHT laws which are complex. For the records, accounting is not taxation, I disagree that having ACA means u have knwn Abt taxation, an accountant knws very little indeed.
To become a taxman u need yrs of on the job practice of taxation. Tax accounting is just one area. Other.complex areas include returns processing, payment processing, debt and arrears recovery, enforcement etc. All these areas have their laws too that needs mastering.

Melahou:
please whats the simple format or a template for calculating VAT and WITHHOLDING TAX