Apportioning input VAT for a client with mixed supplies
How a firm works out the deductible share of input VAT for a Nigerian client making both taxable and exempt supplies, and documents the method.
By Achekam · · 5 min read · For Accountants & audit firms in Nigeria
A private school that also runs a paid canteen and a uniform shop. A property company that lets some buildings as homes and others as offices. A clinic that sells medicines alongside its consultations. Each of these clients makes some supplies that carry VAT and some that do not, and each pays VAT on costs such as electricity, security and repairs that serve the whole business.
How much of that input VAT can the client set against its output VAT? Claiming all of it overstates the deduction. Claiming none of it overpays the tax. The answer lies in apportionment, and the firm's job is to choose a defensible method, apply it every month and keep the evidence.
Only the taxable share can be deducted
The Nigeria Tax Act, 2025 charges VAT at 7.5% on taxable supplies, subject to the exempt and 0% supplies the Act lists. On the input side, the Act allows input tax to be deducted only so far as it was incurred for making taxable supplies, and where supplies are mixed, only the proportion that relates to taxable supplies.
The NRS repeats the rule in its information circular clarifying the changes in VAT administration. A registered person may deduct input VAT only where it was incurred for making taxable supplies, and only for the taxable proportion where it makes both taxable and non-taxable supplies. The NRS circular on the administration of VAT works through input and output VAT with examples and is worth reading in full before setting a client's method. The circular also says deductions are limited to taxable supplies made from the commencement of the new Acts.
PwC's tax summary for Nigeria states the same principle: where input VAT relates to both taxable and non-taxable supplies, only the proportion relating to taxable supplies can be deducted.
Zero-rated supplies are taxable supplies at a nil rate, which is different from exempt supplies. Getting that classification right comes before any apportionment, and is covered in exempt versus zero-rated supplies.
What happens to the VAT that cannot be claimed
The non-deductible share does not disappear. In its guidelines on tax refunds, the NRS says input VAT incurred on exempt items cannot be claimed against output VAT and should be expensed in the income statement.
That has a consequence for the client's financial statements as well as its VAT return. The portion of input VAT disallowed by apportionment becomes part of the cost it relates to. If the firm prepares the client's statements, the VAT working and the expense lines should agree.
A practical method
The sources above set the principle but do not, in the parts consulted here, prescribe a formula. A common and defensible approach has three steps:
- Attribute directly where you can. Input VAT on costs used only for taxable supplies is deductible in full. Input VAT on costs used only for exempt supplies is not deductible at all.
- Pool the shared costs. What remains is input VAT on overheads used for both.
- Apportion the pool. Apply a proportion that fairly reflects how the shared costs are used for taxable supplies, commonly based on the value of taxable supplies against total supplies, unless another basis better reflects use.
Worked in words for the property company: VAT on repairs to the office block is deductible, VAT on repairs to the residential block is not, and VAT on the shared accounting fees is split according to the taxable proportion the firm has chosen and documented.
Check whether the NRS has issued guidance prescribing a method before settling on one. If it has, follow it.
Five years to claim, and which clock applies
Timing matters for clients with a backlog of unclaimed input VAT. The Act allows input tax to be deducted within five years after the end of the tax period in which it was incurred. PwC's summary uses the same wording. The NRS circular puts it as within five years from the tax period in which it was incurred.
The difference in phrasing is small but could matter at the edge. Where a claim is close to the limit, work to the earlier reading or take advice on the Act's exact words, and note on the file which reading the firm relied on.
Inputs from schedules, not linked books
For a Nigerian client, Achekam computes the VAT return from imported sales and purchase schedules, because the client's own books are not linked to it. Staff open a Nigerian tax profile for the client in the Revenue Service Centre and start a return that moves through prepare, review and approve by different people. Lines can be typed in as well as imported.
That design shapes how apportionment is done. The apportionment working sits in the firm's working papers, and the purchase lines brought into the return should reflect only the deductible input VAT, with the disallowed share left out and expensed. The reviewer then compares the schedule with the working before approving. The broader workflow is described in client VAT returns from schedules.
Where the firm also audits or prepares the client's statements, its lead schedules in Achekam are built from the engagement's trial balance with each figure traceable to its lines. If the client claimed too much input VAT during the year, staff record the adjustment on the relevant line with a reason that points to the apportionment working.
Document the method, then true it up
A method that lives in one manager's head will not survive staff changes. Record on the client's permanent file:
- the client's taxable, zero-rated and exempt supplies, with the basis for each classification;
- the direct attribution rules for its main cost types;
- the apportionment basis for shared costs, and why it was chosen;
- the provisional proportion used monthly, if any, and how it is calculated.
Monthly returns often use a provisional proportion based on recent figures. At the year end, recalculate the proportion on the actual figures for the year and compare. Correct any difference in a later return, documenting the adjustment, rather than leaving the provisional figures to stand.
List the firm's Nigerian clients that make any exempt supplies. For each, check that the permanent file states an apportionment method, and schedule a year-end true-up for every one that does not have one yet.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
