Getting ready for an NRS tax audit
The records a Nigerian business should have ready when the NRS audits it, how long to keep them, and how closed months help you answer requests.
By Achekam · · 5 min read · For Running a business businesses in Nigeria
The letter from the Nigeria Revenue Service is polite, brief and unsettling. It names the tax years under review, lists the documents the auditors want, and gives a date. For a business whose records are scattered across a laptop, a filing cabinet and a former bookkeeper's e-mail, the next few weeks will be spent searching rather than explaining.
A tax audit goes far better when the business can produce what is asked for quickly and show that its figures hang together. This article sets out what the NRS says taxpayers must keep, the areas auditors tend to test, and how to organise your books and files so that the audit becomes a matter of handing things over.
The duty behind the audit
The NRS says the Nigeria Tax Administration Act requires taxpayers to keep accurate records and to provide information on request. That second part is the one a tax audit puts to work. The auditors' request is not a favour you can decline; it is part of the duty that came with being a taxpayer.
The duty is also why preparation pays. Records that already exist, in order, can be produced. Records that have to be reconstructed take time, and a business that cannot produce them is in a weak position whatever the merits of its figures.
English, and at least six years
The NRS FAQ says books of account must be in English or have a certified translation, and taxpayers must retain them for at least six years after the relevant assessment year.
Both parts catch people out. A business whose suppliers invoice in another language, or whose founder kept notes in one, needs translations for anything that supports the books. And six years after the assessment year is longer than most people assume: records supporting a return filed this year must outlive several changes of staff and software.
The NRS keeps these rules, and its answers on the move from FIRS, on its frequently asked questions page.
Audits that began under FIRS
If the audit started before the change of name, it carries on. The NRS says ongoing audits, advance rulings, objections, appeals and disputes started under FIRS continue under the NRS without restart or revalidation. Correspondence from the earlier stage still counts, so keep it with the new letters rather than filing it away as history.
What auditors look at
No two audits are the same, but two themes in what the NRS publishes point to where attention goes.
Reliefs and deductions. The NRS says that to qualify for tax reliefs, a taxpayer must keep proper books and records, file accurate and timely returns and submit the supporting documents the NRS requires. Any relief or deduction you claimed is likely to be tested against that standard: where is the document, and does it show what the return says?
Arrangements. The NRS says the Nigeria Tax Act includes general anti-avoidance and substance-over-form rules, with powers to disregard artificial or fictitious arrangements. If your business has related-party charges, management fees, unusual loans or transactions with a tax reason behind them, expect questions about what really happened, and be ready to show the commercial substance.
Books that answer questions
The fastest audits are the ones where every figure on a return can be traced to lines in the books, and the books for the period can no longer change.
The ledger behind each figure. In Achekam, the general ledger lists every posted line, and the trial balance shows each account for all time, for a period or at a date, and says whether debits equal credits. When an auditor asks how a turnover or expense figure was built, run the trial balance for the period of the return and drill into the account in the general ledger.
Closed months. Months in Achekam can be soft-closed, hard-closed and locked, and a closed month refuses postings from every source. Reopening a hard close needs a second approver. Before closing, the screen checks that the ledger balances and that no posting suggestions, unposted bills or unmatched bank lines are waiting. An auditor reviewing a closed year knows the figures in front of them are the figures that were reported, not ones adjusted last week.
Filed documents. Document Centre is a folder-based store where a business uploads files or whole folders, previews, downloads, renames, moves, tags and searches them, and a new version of a file keeps the earlier ones. Keep one folder per tax year, with subfolders for returns, payment receipts, contracts, relief evidence and correspondence. When the request list arrives, much of it can be answered by sharing a folder rather than building one.
Who speaks for the business
Decide early who deals with the auditors. In many small businesses the owner knows the transactions and the accountant knows the tax, so the answer is both, with clear roles.
If your accountant works in your books, a business appoints its accounting firm in Achekam by the firm's Achekam address or firm code, as accountant, auditor, tax practitioner, payroll provider or adviser, with an access level, and the firm accepts or declines. Giving your tax adviser direct access to the ledger and the documents saves days of back and forth when the auditors' questions start.
Agree between you who replies in writing, who attends meetings, and that nobody answers a question on the spot when they are not sure.
A preparation checklist
- Every month in the years under audit closed in the books.
- Trial balance for each year agreeing to the return filed.
- Returns, payment receipts and NRS correspondence filed by year.
- Evidence for every relief and deduction claimed.
- Contracts and explanations for related-party and unusual transactions.
- Translations for any records not in English.
- One named contact, with the adviser appointed and briefed.
Keeping records for the full period is covered in keeping Nigerian business records for six years, and how far back an assessment can reach is explained in assessment time limits in Nigeria and Kenya. Close last month before you do anything else.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
