Using withholding tax credits against your own tax
How a Nigerian business turns the withholding tax its customers deducted into credits against its own tax, and what to do when they deduct too much.
By Achekam · · 5 min read · For Running a business businesses in Nigeria
A customer pays your invoice and the amount is short by a round percentage. The missing part is withholding tax: the customer kept it back and is meant to pay it to the tax authority in your name. For a Nigerian business that sells services or contract work to companies and government, those deductions add up over a year to a real sum.
Booked as a cost, that money is lost. Treated as what it is, tax already paid on your account, it reduces what you pay when your own return falls due. This article covers how the credit works in practice, when it does not apply, what to do when a customer deducts too much, and how to keep the books straight while Achekam's receipt screens cannot settle the withheld part of an invoice.
Money withheld is tax paid on your account
When a customer withholds, it reports the deduction to the NRS. The NRS says a person who deducts tax at source must file a return with evidence of remittance, showing for each payee the name and address, Tax ID, NIN or RC number, the nature of the transaction, the gross amount, the tax deducted and the calendar month the payment relates to.
That list is the thread between the customer's deduction and your credit. If the customer records your Tax ID wrongly, or reports the deduction against the wrong month, the credit may not appear where you expect it. Give every customer that withholds from you your Tax ID, registered name and address exactly as the NRS holds them, and ask them to use those details on every return.
In your own books, the withheld amount is an asset until it is used, so it belongs in a receivable account for withholding tax rather than in an expense line.
Using credits on the NRS portal
The NRS says company tax returns must be filed electronically through its Self Tax Portal, where the taxpayer downloads the return forms, uploads the completed forms and pays through the portal's approved electronic payment channels. Its Company Income Tax page sets out that filing route and adds that the portal shows the status of returns and lets taxpayers use their withholding tax credits.
In practice, look at the portal well before filing. Compare the credits it shows with your own list of deductions, and raise any that are missing with the customer while the year is still recent. A credit you cannot see on the portal is a credit you will struggle to use.
When the deduction is the final tax
Not every deduction becomes a credit. The NRS says tax deducted on a payment to a non-resident is the final tax, unless the income is liable to further tax because of a taxable presence in Nigeria. For a foreign supplier with no such presence, the deduction settles its Nigerian tax on that income, and there is no Nigerian return to set it against.
For most Nigerian businesses this rule comes up when they are the payer, deducting from an overseas supplier; when withholding is the final tax on payments abroad covers that side. A resident company receiving payments is in the other position: its deductions are credits to claim.
A customer deducted too much
Customers sometimes apply the wrong rate. The NRS's Guidelines on Tax Refund, Information Circular No. 2026/17, list the cases in which a taxpayer is eligible for a refund. Among them are tax paid in excess of the amount due for the year of assessment, tax paid twice or in error, and withholding tax remitted at rates higher than the statutory rates.
An over-deduction is therefore recoverable in principle, but start with the customer. A wrong rate tends to repeat on every invoice until someone points it out. Keep the invoice, the remittance advice and the customer's evidence of what it paid over. For the rates that apply to fee income, see withholding tax on professional fees.
Recording short payments in Achekam today
Achekam records customer payments against one invoice or spread across a customer's invoices. A part payment leaves the invoice part-paid, and any extra is held on the customer's account. What the receipt screens cannot do yet is settle the withheld part of an invoice: there is no option there to mark the shortfall as tax deducted by the customer.
Until that changes, a workable routine is:
- Record the cash actually received as a receipt against the invoice, which leaves it part-paid.
- Leave the withheld amount open on the invoice rather than forcing it closed.
- Keep a list of those invoices: customer, invoice number, gross amount, cash received, tax withheld and whether you hold the customer's evidence.
- Agree with your accountant how and when the open amounts are cleared to the withholding tax receivable account.
The same routine is laid out from a consultant's point of view in fees paid net of withholding tax.
On the tax side, Achekam's Revenue Service Centre computes Nigerian company income tax with the Development Levy and the minimum-ETR check, and withholding tax, once its rules are approved. Every Nigerian tax figure in its rule book was loaded "under review", and nothing is computed from a figure until an Achekam platform administrator approves it.
A quarterly credit check
Waiting until the return is due leaves no time to chase anyone. Once a quarter:
- List every invoice still part-paid because of withholding.
- Match each one to the customer's evidence of remittance.
- Compare the total with the credits the NRS portal shows against your Tax ID.
- Chase missing remittances, and question any deduction that looks higher than the rate for that kind of payment.
- Note which credits you expect to use on the coming return.
A withholding credit is only as good as the paper behind it. Keep the evidence with the invoice, look at the portal every quarter, and the credits will be waiting when your own return is due.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
