Obiora was not a careless man. He ran his logistics company with the discipline of a trader who knew that money had wings. But when Emeka, his old schoolmate, came to him with a request, he did not think twice. Emeka had secured an opportunity abroad but needed to prove steady earnings for his visa application. The plan was simple—every month, Emeka would deposit a fixed amount into Obiora’s company account, and Obiora would pay it back to him as “salary.” It was just a harmless arrangement, or so Obiora thought.
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Months passed, and the arrangement worked smoothly. Then came the letter from the Federal Inland Revenue Service (FIRS). The tax authorities had noticed the consistent inflow into Obiora’s company account. To them, it was income, and since no tax had been remitted, they demanded explanations, plus penalties for undeclared earnings.
Before he could make sense of that, the Lagos Internal Revenue Service (LIRS) followed. They classified Emeka’s “salary” payments as legitimate employment income and imposed back taxes, penalties and interest onthe sum for unremitted Pay-As-You-Earn (PAYE) tax.
Then, the Nigeria Social Insurance Trust Fund (NSITF) sent their own notice. Since Obiora had been “paying salaries,” he was now required to pay the statutory 1% of monthly wages to the social insurance scheme.
Obiora’s harmless favor had become an expensive liability. What started as an act of goodwill had attracted layers of tax burdens he never expected.
Lessons from Obiora’s Mistake
Many business owners, like Obiora, fall into this trap, unaware of the tax implications of using their company accounts for third-party transactions. To avoid such pitfalls:
Avoid Misrepresenting Transactions – Personal favors should never be disguised as business activities.
Understand the Consequences – Monthly inflows into a company account can be classified as taxable revenue.
Comply with Employment Regulations – Any payments made under the guise of salary can trigger PAYE and NSITF obligations.
Maintain Clear Financial Boundaries – A business account should only reflect actual business transactions.
Don’t Let Tax Mistakes Cost You Millions!
At UBR Tax, we help businesses navigate complex regulations and avoid costly mistakes. Whether it’s tax advisory, compliance checks, or dispute resolution, our experts ensure your company stays compliant while maximizing tax efficiency.
Do you Need help with your tax strategy? Call UBR Tax today at 08036258312 or visit our website to book a consultation. Let’s protect your business from surprises!
