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 2023 returns is 31 January 2024. 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 the 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 the 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 2023.
- 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?
It depends on whether the State IRS (Internal Revenue Service) uses online or e-mail or manual returns. Electronic returns will follow the filing requirement of the IRS. For manual process, please contact the relevant tax office of the employee.
A general guide is shown below.
a. Cover letter for “submission of annual returns”. It must include contact details of the company’s representative on Personal Income Tax issues.
b. Hard copy and soft copy, saved on flash drive or compact disk, of the following documents;
- Employers Annual Declaration and Certificate (Form H1) relating to income and PAYE tax in the year duly signed by a certified tax practitioner.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.
5. An employee worked and received salary for just one month in 2018, is there need to include this employee on Form H1?
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?
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 will be filed in each state where an employee resides.
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?
9. Is there any penalty for non-compliance?
Yes. The penalty is NGN500,000 for corporate bodies and NGN50,000 for individuals. It pays to comply before the deadline of 31 January.
Form H1 is one of the tax returns in Nigeria, and coping with numerous tax deadlines can be difficult. The time and expertise involved are even more to file payroll tax returns in multiple states. For further assistance on your current payroll situation, send a message.
Updated 26 January 2024