The Complete Guide to VAT for Small Businesses in Nigeria

If you run a shop in Nigeria, VAT is probably the tax you get wrong most often. It’s on your supplier’s invoice. Your customer’s accountant asks for it. FIRS expects it every month. And nobody ever sat you down to explain how it actually works, so you guess. You add 7.5% when you remember, skip it when you’re slammed, and hope it evens out by year end.

It doesn’t. Undercharge and you eat the tax yourself. Overcharge and you lose the sale. Either way it costs you.

Here’s how VAT actually works, who has to register, how to calculate it without getting it backwards, and how to file with FIRS. No accounting degree needed.

What is VAT?

VAT is Value Added Tax, a tax on what people buy. It gets charged each time goods or services change hands, and the final customer is the one who really pays it. Your job is to collect it, hand it to the government, and claim back the VAT you paid on your own purchases.

That collector bit is what people miss. VAT is not your money and it’s not a cost to you. You’re holding it for FIRS until you remit it.

The rate is 7.5%. It went up from 5% in February 2020 and has held there since. A few categories are exempt (more on those below), but for most retail products, 7.5% is your number.

One distinction worth nailing down, because people mix these up constantly:

• VAT is a tax on sales. It’s collected from the customer and remitted every month. It has nothing to do with whether you turned a profit.
• Company Income Tax is a tax on profit. It’s worked out on what’s left after expenses, and it’s filed once a year.

You can have a terrible month, make no profit, and still owe VAT, because VAT is about what you sold, not what you kept. If the difference between sales and profit is fuzzy for you, revenue is not profit unpacks it.

Who needs to register?

Registration comes down to turnover:

• NGN25 million or more in annual sales, and you must register, charge VAT, file, and remit.
• Below NGN25 million, and you don’t have to charge VAT or file monthly. You still pay VAT on your purchases; you just don’t collect it.

That NGN25 million line is roughly NGN2.1 million a month. A busy pharmacy or supermarket crosses it faster than the owner expects. Once you’re consistently over it, registering stops being optional.

Some goods carry no VAT at all, no matter who sells them: basic food staples like rice, beans, and bread, medical and pharmaceutical products, books, baby products, and agricultural inputs. This is why a pharmacy can’t just slap 7.5% on everything. A basic medicine might be exempt while the cosmetics on the next shelf are fully taxed. You have to know which is which per product, not per shop.

A couple of myths worth killing:

• “I’m small, so VAT doesn’t touch me.” You still pay it on purchases, and you must collect it once you cross the threshold.
• “VAT eats my profit.” No. It sits on top of the price and the customer pays it. If it’s coming out of your margin, you’ve priced it wrong.

How VAT works

Two terms and you’ve got it:

• Output VAT is what you charge customers when you sell.
• Input VAT is what you pay suppliers when you buy.

What you send to FIRS each month is the gap between them:

VAT payable = Output VAT − Input VAT

Say in one month you bought stock and paid NGN75,000 in VAT to suppliers, then sold goods and collected NGN120,000 from customers. You remit NGN120,000 − NGN75,000 = NGN45,000. The NGN75,000 you already paid is credited back through the input VAT mechanism, which is exactly why you keep every supplier invoice. Lose the invoice, lose the credit.

How to calculate VAT

This is where the mistakes live. The direction of the sum depends on whether VAT is being added on top of a price or is already sitting inside it.

Adding it on top. If a price is quoted before VAT, you add 7.5%. A supplier quotes NGN500,000 exclusive of VAT: the VAT is 500,000 × 0.075 = NGN37,500, so you pay NGN537,500.

Pulling it out of an inclusive price. This is the one shop owners fumble. If your shelf price already includes VAT (and in Nigerian retail it usually does), you can’t take 7.5% of the sticker. You work backwards:

VAT inside = Price × 7.5 ÷ 107.5

Sell a bottle of perfume for NGN10,000, VAT included: 10,000 × 7.5 ÷ 107.5 = NGN697.67. Not NGN750. If you’d taken a flat 7.5% of the shelf price you’d have overstated the VAT by more than fifty naira on one bottle. Repeat that across a month and your return is wrong.

Real sales aren’t tidy, either. A customer grabs one taxable item and one exempt item in the same go:

Two items, two rules, one receipt. Doing that by hand at a busy counter is where the errors sneak in.

Registering and filing

If you’ve crossed the threshold, you register through FIRS, and it’s tied to your tax identity. You’ll generally need your Tax Identification Number (TIN), your CAC documents, your business details, and a completed registration form. If you don’t have a TIN yet, that comes first. From there you register on the FIRS TaxPro-Max portal or at a FIRS office, and you start issuing tax invoices from your effective date.

Filing is monthly. Your return and payment for a month are due on or before the 21st of the next month, so June’s VAT is filed by 21 July. File even when you collected nothing, because a nil return still has to go in. Miss the 21st and FIRS charges penalties and interest, and they build the longer you leave it. Requirements and portals shift, so confirm the current steps with FIRS or your accountant before you file.

The mistakes that cost the most

• No proper VAT invoice. A receipt that hides VAT inside the price is useless to a registered customer whose accountant needs it broken out. You lose B2B buyers over this.
• One pocket for the shop and yourself. When your float and your wallet are the same money, you can’t tell what you sold, and your VAT figure becomes a guess.
• Lost supplier invoices. No invoice, no input VAT credit, so you remit more than you should.
• Calculating the wrong direction. Taking 7.5% off an inclusive price instead of pulling it out, as above. Small error, thousands of repetitions.
• Missing the 21st. The deadline doesn’t care how busy you were.

Do it monthly, and don’t do it by hand

The best habit is reviewing VAT every month while it’s fresh, not going spelunking through a shoebox of receipts at quarter end. And the second best habit is not doing the arithmetic yourself.

Everything above is doable by hand. It’s just slow, easy to get wrong, and exactly the kind of repetitive sum a computer should be doing. If you’re still on paper, moving to an app is the highest-leverage change you can make. When your stock records match your sales records, your VAT reconciles on its own. And keep VAT clearly separate from your profit, because one sits on top of the other and shouldn’t be confused with it.

This is the part Mayloo takes off your plate. You set your rate once, mark exempt products as 0%, and every sale, order, and invoice works out the VAT and prints it cleanly on the receipt. A built-in Tax Collected report groups your VAT by month and rate, so when the 21st rolls around, the number you file is already sitting there. It also builds on professional receipts, so what the customer gets looks the part.

The short version

Hold two facts in your head and VAT stops being scary. You’re a collector, not a payer. And the calculation runs backwards out of your shelf price, not forwards on top of it. Register once you cross NGN25 million, charge 7.5% on taxable items, keep every invoice on both sides, and file by the 21st. The rest is record keeping, which is precisely the part you shouldn’t be doing by hand.

Frequently asked questions

What is the current VAT rate in Nigeria? The standard rate is 7.5%. It rose from 5% in February 2020 and has held there since. Basic food, medicines, and a few other categories are exempt or zero-rated.

Do small businesses have to register for VAT? Only if your annual turnover is NGN25 million or more. Below that, you don’t charge VAT or file monthly returns, though you still pay VAT on your purchases. Cross NGN25 million and registration is required.

How do I calculate VAT on a price that already includes it? Work backwards: VAT inside = price × 7.5 ÷ 107.5. For a NGN10,000 shelf price that’s NGN697.67, not NGN750. Taking a flat 7.5% of an inclusive price overstates the tax.

When are VAT returns due? Monthly, on or before the 21st of the following month. June’s VAT is filed by 21 July. File a nil return even in months you collected nothing.

What happens if I file late? FIRS charges penalties for late filing and payment, plus interest, and the cost grows the longer you wait.

Want to stop guessing at VAT? Try Mayloo free → and let it calculate, track, and report your VAT while you get on with running the shop.

This is general information, not tax advice. VAT rules, thresholds, and deadlines are set by FIRS and change over time. Confirm the specifics for your business with a qualified accountant or FIRS directly.