VAT on invoices in Nigeria

The rate, and what "exclusive" means

Exclusive means VAT sits on top of the agreed price. If you quote 100,000 for a job and you charge VAT, the customer owes 107,500. The 100,000 is yours. The 7,500 is not.

The wrong way round is to treat the 100,000 as already containing VAT and to hand over 6,976.74 of it. You have then paid the tax out of your own fee. On a single small invoice that is an irritation. Across a year of work it is a real hole in your margin.

So the arithmetic on the document runs in one direction only. Take the net amount, multiply by 0.075, add it. Never divide by 1.075.

A worked example

Two line items, a discount, then VAT. Note the order: the discount comes off before VAT is calculated, because VAT is charged on what the customer actually pays for the goods or services.

The VAT figure is 807,500.00 multiplied by 0.075. The customer pays 868,062.50. Of that, 807,500.00 is your income and 60,562.50 is tax you are holding.

Both figures are wrong in the second version. You have taken 56,337.21 out of your own fee, and you have also declared less VAT than the transaction should have produced.

Who has to charge VAT

Not every Nigerian business charges VAT. Small businesses are not required to collect VAT on their invoices. Every other organisation supplying taxable goods or services is.

Some supplies are exempt or zero rated regardless of who makes them. Exported services are zero rated, which means no VAT is charged on them and input VAT incurred in producing them can still be recovered. That matters if you bill clients abroad, and it is covered in invoicing international clients from Nigeria.

If you are not registered and not charging, leave VAT off the document entirely. Do not put a line reading "VAT 0.00". It looks like an error and invites a query.

What a VAT invoice shows

Your customer needs the VAT figure separately, because a registered customer will claim it as input tax. If they cannot read the VAT off the document, they will send it back.

• Your registered business name and address, exactly as registered.
• Your Taxpayer Identification Number. See TIN and CAC details on your invoice.
• A unique invoice number and the date of issue.
• The customer's registered name and address.
• A description of each item or service supplied.
• The net amount, before VAT.
• The VAT rate applied, written as 7.5%, and the VAT amount as its own line.
• The total payable, net plus VAT.
• The currency.

If a single invoice mixes taxable and exempt items, split the subtotal so the VAT line clearly relates only to the taxable part. A reader should be able to reconstruct your calculation without asking you.

Charging VAT is not the same as keeping it

This is the part that catches people out. The VAT on your invoice is not turnover. You are collecting it on behalf of the state, and you have to file and pay it over. Money that arrives in your account with VAT inside it will feel like a good month until the filing date.

Two practical habits protect you. First, when the payment lands, move the VAT portion out of your working balance immediately. Second, do not let the VAT you have collected fund your operating costs, because the amount is not yours to lend yourself.

What you owe over is output VAT less the input VAT you paid on your own purchases, where you are entitled to recover it. Keep the supplier invoices that carry a VAT line. Without the document you cannot claim the input.

Common mistakes

Nearly all of these are arithmetic or presentation errors rather than misunderstandings of the law. They are worth reading once, because each of them is cheap to avoid and expensive to correct after the invoice has been paid.

• Dividing by 1.075 instead of multiplying by 0.075. You lose the tax out of your own fee.
• Applying VAT before the discount. VAT follows the amount the customer actually pays.
• Rounding the VAT line to the naira on a large invoice, then leaving the total inconsistent with it. Keep the kobo, or round once at the end and show your rounding.
• Charging VAT while not registered to collect it.
• Burying VAT inside a unit price so the customer cannot claim input tax.
• Spending collected VAT and finding it missing at the filing date.
• Using a symbol instead of a currency code on an invoice going abroad.

Billify calculates the VAT line from the net amount and shows it separately on every template. You can produce a VAT invoice without an account at the invoice generator, or see the layouts in the template library.