Nigeria’s National Tax Administration Act (NTAA) has fundamentally changed the compliance landscape for employers under the new tax law. Actions that used to result in a warning letter can now trigger substantial fines. There are also interest charges and serious legal consequences. Enforcement mechanisms will become stronger throughout 2026. The Nigeria Revenue Service has emphasized one thing: payroll errors are not acceptable under the new tax law.
The challenge is that many of these mistakes seem innocent or technical. They often involve small oversights that businesses have gotten away with for years. However, under the new tax law, these “minor” errors can be costly for your organization. Penalties can reach hundreds of thousands or even millions of naira.
Here are the five most common payroll mistakes. These mistakes will get you fined under the new tax law. Learn how to avoid them.
1. Miscalculating PAYE Under the New Tax Brackets
The Mistake:
The new tax law introduces revised progressive tax brackets, including a complete exemption for anyone earning ₦800,000 annually or less. Many employers are still using old tax tables. This results in either over-deduction, which angers employees, or under-deduction, which triggers penalties from the Nigeria Revenue Service.
Some payroll systems haven’t been updated to reflect the new brackets. Others have been manually adjusted incorrectly. Either way, if your PAYE calculations don’t meet the requirements of the new tax law, you are operating in violation. This is true whether you realize it or not.
Why It Gets You Fined:
The NTAA treats under-deduction of taxes as a serious offense. If you deduct less tax than required, you’re liable for the shortfall plus interest and penalties. The NRS considers this a failure to remit proper taxes. Penalties scale based on the duration the error continues undetected.
How to Avoid It:
- Update your payroll system immediately to reflect the 2026 tax brackets. If you’re using manual calculations or Excel spreadsheets, stop. The complexity of progressive taxation means manual systems will inevitably make errors. Modern HR software like Accur8HR includes Nigerian tax legislation. It updates automatically when laws change. This feature eliminates this risk entirely.
- Run test calculations for employees at different salary levels to verify your system is calculating correctly. Compare results against the published tax tables from the Nigeria Revenue Service. If there are discrepancies, fix them before processing your next payroll.
2. Failing to Maintain Proper Documentation and Audit Trails
The Mistake:
Many organizations process payroll without maintaining comprehensive records. They do not document how calculations were made. Changes that occurred often go unrecorded. Organizations also lack records of who approved them and what data supported the final figures. When audited, they cannot produce documentation proving their tax calculations were correct.
Paper-based records get lost. Spreadsheets get overwritten. Email approvals disappear. And when the NRS comes asking questions, “I don’t know where that file is” isn’t an acceptable answer.
Why It Gets You Fined:
Under the NTAA, the burden of proof lies with the employer. If you cannot demonstrate that your payroll calculations were accurate and compliant, the NRS can assess penalties. They will do so based on the assumption that you under-reported. Without documentation, you have no defense.
Additionally, the law requires specific records to be maintained for defined periods, typically at least six years. Failure to retain these records is itself a violation that attracts penalties, separate from any actual tax errors.
How to Avoid It:
- Implement systems that automatically create and maintain audit trails. Every payroll run should generate documentation showing what was calculated, when, and based on what data. Every change to employee records like salary adjustments, allowance additions, deduction changes, should be logged with timestamps and user identification.
- Modern cloud-based HR systems maintain these audit trails automatically. When the NRS requests documentation, you simply generate the required reports. You don’t need to scramble through filing cabinets and hope the right papers still exist.
3. Misclassifying Allowances and Benefits
The Mistake:
Nigerian tax law distinguishes between taxable and non-taxable allowances. Housing allowances, transport allowances, and meal subsidies have specific tax treatments. Other benefits are also categorized by their tax treatment. This depends on how they are structured and documented. Many employers misclassify these components. They either fail to tax items that should be taxed or incorrectly tax items that are exempt.
A common error occurs when treating all allowances as non-taxable. Another mistake is applying blanket tax treatments without considering specific rules for each type. Another frequent mistake is failing to properly document allowances, making it impossible to prove they qualify for favorable tax treatment.
Why It Gets You Fined:
When allowances are misclassified, PAYE calculations become incorrect. If you have been treating a taxable allowance as exempt, you have been under-deducting taxes. Consequently, you are liable for the shortfall. The NRS regularly audits allowance structures and frequently finds substantial under-reported income through improper classification.
How to Avoid It:
- Understand the specific tax treatment of each allowance type under the new tax law. Structure your compensation packages with tax efficiency in mind, but ensure every element is properly classified and documented.
- Work with qualified tax professionals to review your allowance structures annually. When laws change or new allowances are introduced, verify their proper tax treatment before implementing them in payroll.
- Use payroll systems that allow proper categorization of different allowance types and calculate taxes accordingly. Generic fields labeled “allowance” without specificity create classification errors and compliance gaps.
4. Delaying or Incorrectly Filing Tax Remittances
The Mistake:
Even when taxes are correctly calculated and deducted from employee salaries, many organizations fail at the remittance stage. They file late, submit incorrect amounts, or provide incomplete information that doesn’t match their payroll records. Some delay remittances deliberately to manage cash flow, not realizing the cost of this decision.
Why It Gets You Fined:
The NTAA is explicit; taxes deducted must be remitted on time. Late remittance attracts interest charges that accrue daily. Penalties can reach 10% of the outstanding amount or more. This depends on how long the delay continues. The longer you wait, the more expensive it becomes.
Additionally, discrepancies between what you deducted and what you remitted raise immediate red flags. The NRS has sophisticated systems that cross-check deductions against remittances. When these do not match, audits follow quickly.
How to Avoid It:
- Establish strict internal deadlines that are earlier than official filing deadlines. Automate remittance processes whenever possible. This approach eliminates reliance on manual submission.
- Reconcile your payroll records against tax remittances monthly. Before submitting, verify that the amount being remitted exactly matches what was deducted from employee salaries. Any discrepancies should be investigated and resolved promptly, not left to compound.
- Consider using systems with API integration that can file returns electronically and deliver confirmation of successful submission. Manual filing creates opportunities for errors and delays that electronic systems eliminate.
5. Ignoring Employee Tax Identification Numbers (TINs)
The Mistake:
Many employers fail to collect and verify Tax Identification Numbers for all employees. Some process payroll for workers who don’t have TINs. Others have TINs on file but never verify if they are valid or correctly linked to the right individuals.
This seems like an administrative detail, but under the new tax law, it’s a compliance fundamental.
Why It Gets You Fined:
The NTAA requires all taxable individuals to have valid TINs, and employers are responsible for ensuring their employees comply. Processing payroll without valid TINs creates compliance gaps. These gaps prevent proper tax reporting. They make it impossible for the NRS to track individual tax obligations accurately.
When the NRS cannot match payroll deductions to individual taxpayer records, it is because TINs are missing or incorrect. They assume non-compliance. As a result, they assess penalties.
How to Avoid It:
- Make TIN collection mandatory during onboarding. Do not process anyone’s first payroll until you have a verified TIN on file. For existing employees without TINs, set a deadline for obtaining them and follow up aggressively.
- Verify TINs against NRS databases where possible. Some modern HR systems can check TINs electronically, flagging invalid or mismatched numbers before they create problems.
- Include TIN status in your regular compliance audits. Review your employee database quarterly to find anyone without a valid TIN and take immediate action to resolve the gap.
In conclusion, the new tax law has eliminated the gray areas and tolerance for “close enough” payroll compliance. Mistakes that organizations lived with for years are now expensive liabilities that can trigger significant fines and legal consequences. The common thread connecting all five mistakes is this: they are preventable through proper systems and processes. Manual payroll management, disconnected HR data, and reactive compliance approaches create the conditions where these errors flourish.
Organizations using modern, integrated HR and payroll systems like Accur8HR avoid most of these pitfalls naturally. Compliance is built into the workflow. It is not bolted on afterward. The enforcement is already here. The question is whether your payroll processes are ready to meet the new standards. Otherwise, you’ll learn about compliance gaps through penalty notices.
Don’t wait for fines to discover you have problems. Audit your payroll compliance now.
Need help ensuring your payroll is fully compliant? Click here to book a 15 minute call with our team to avoid unnecessary payroll errors.
Author
Business Development Manager, Digital Marketing Executive at OnePyramid Consulting Limited
