An employer is required to deduct Pay-As-You-Earn (PAYE) tax from employees’ salary in each month. Thereafter, the employer must remit the amount to the relevant tax authority within 10 days of the next month. Besides the monthly PAYE tax return, an employer should file an annual tax return. In this piece, BRC addresses nine (9) frequently asked questions on Annual Employer Tax Return in Nigeria.
1. What is an Annual Employer Tax Return?
Section 81(2) of the Personal Income Tax Act, Cap P8 LFN 2011, as amended, (PITAM) requires every employer to file a return with the relevant tax authority showing emoluments and PAYE tax of employees in the prior year. The due date for filing this return is January 31. For example, the deadline for 2018 returns is 31 January. Another name for this return is Form H1 or Annual Employer Declaration and Certificate.
2. What are the steps for preparing an Annual Employer Tax Return?
- Get the monthly payroll report, one-off payments and any other compensation data. The report shall cover January, or date of first hire, to December.
- Compare the total amount on PAYE tax receipts with the monthly tax calculation. Reconcile any difference.
- Combine the monthly income and tax paid into annual figures for each employee.
- Calculate the PAYE tax based on the annualized amount. Next, compare the values with the monthly PAYE tax paid. Finally, if there is a tax payable, pay the outstanding amount to the relevant tax authority (RTA). If the review shows a tax recoverable, a taxpayer may request an offset, in writing, from next tax payable to the RTA.
3. What are the contents of a Form H1 (Annual Employer Tax Return)?
- Header showing the company’s name, name of the return and year of assessment. For example, Company XYZ, Form H1 for the year ended 31 December 2018.
- Details of all employees such as name, payer ID, gross income, tax paid, number of months in employment
- Form G containing details of the annual PAYE tax remittance and copy of the revenue receipts.
The company must affix its corporate stamp at the lower part of the form. A taxpayer may collect a template of this return from the nearest tax station.
4. What other documents should go with Form H1?
a. Cover letter for “submission of annual returns”. It must include contact details of the company’s representative on Personal Income Tax issues.
b. Soft copy of the following documents saved on rewriteable compact disk
- Employers Annual Declaration and Certificate (Form H1) relating to income and PAYE tax in the year. This comes in Microsoft Office Excel format.
- Schedule of PAYE tax remittance (in Microsoft Office Excel format) and corresponding receipts.
- Evidence of payment for business premises and development levy. Development levy is N100 per employee. For example, an organisation with 20 employees will pay N2,000. On the other hand, business premises levy is a flat sum of N10,000 for new registration while the fee for renewal is N5,000.
- Projected annual payroll for the current year including pension and other exempted items from PAYE tax. For instance, copy of certificate on life insurance premium.
At the time of filing Form H1, an employer may submit duly completed e-TCC application forms for fresh applicants only. Another schedule should be prepared for renewal application.
5. An employee worked and received salary for just one month in 2018, is there need to include this employee on Form H1?
Yes. Irrespective of the number of months which an employee works in a year, all employees in a fiscal year should be included on Form H1. The fiscal year in Nigeria runs from January to December.
6. My company has 10 employees based in Rivers State. Should we file 10 different Form H1 returns to the Rivers State Internal Revenue Service?
No. An employer will file one (1) Form H1 return for all employees in a state.
7. My firm has employees who live in five (5) states – Lagos, Kaduna, Delta, Abuja and Enugu. Which state is the relevant tax authority?
Under PITAM, relevant tax authority is the tax authority for collecting PAYE tax of individuals. Each state has its tax authority. Hence, Form H1 would be filed in each state where an employee is resident.
8. Within one fiscal year, an employee lived and worked in two (2) states, that is, 4 months in Lagos state and 8 months in Oyo state. PAYE taxes were remitted to tax authorities in the 2 states. Where will the Form H1 be filed?
The company will file Form H1 with Lagos State Internal Revenue Service and Oyo State Internal Revenue Service .
9. Is there any penalty for non-compliance?
Yes. The penalty is N500,000 for corporate bodies and N50,000 for individuals.
Get the latest content delivered to your inbox..