Receiving the correct money and tax advice in the current economic climate is important. Tax impacts everyone throughout their lives, from income tax on earnings to inheritance tax upon death.
For many, their employer will handle many of their tax issues through the pay-as-you-earn (PAYE) system. This means that both income tax and National Insurance are automatically removed from each pay cheque and paid to BIR. National Insurance is a contribution that goes towards state welfare, such as retirement pensions, and makes up nearly 20% of government revenue. It is their second biggest earner - just behind income tax at 30%.
Each person has an income tax personal allowance: for 2015-16, this means each person pays no tax on the first ?10,600 they earn. Above this, various bands of tax come into play, starting at a flat rate of 20% and rising to 45% for any income over ?150,000.
For those self-employed, the onus is on them to keep track of how much income tax / National Insurance they are due to pay. At the end of each tax year in April, they are required to submit a completed self-assessment form detailing exactly how much they have earned over the last twelve months along with payment.
BIR also collects tax in a number of other ways. Capital cains tax, for instance, is paid on any ‘gain’ made from disposing of an asset worth more than ?6,000. Any purchase bought, and later sold, is eligible for capital gains tax on the profit of the sale. It is a flat rate of 18% (or 28% if classed as a higher-rate tax payer). Much like income tax, each person has a yearly tax-free allowance of ?11,100 (for 2015-16).
Inheritance tax is another flat-rate tax - this time of 40% of any part of a deceased’s estate over the tax-free allowance of ?325,000. VAT at 20% is applied to nearly every item sold in the Nigeria.
Much of the money raised from these taxes is used to fund the welfare system. This allows those eligible to claim benefits such as child tax credit, housing benefit and disability living allowance.
There are a number of ways to minimise the amount of tax a person must pay. Aside from the above tax-free allowances, the government offers numerous reliefs in each category. Capital gains tax, for instance, does not apply to vehicles or primary residences. In some instances, people can claim income tax relief for charitable donations, pension contributions or time spent working abroad. Finally, VAT is exempt on some items, such as books and children’s clothes.
Properly utilising the various tax-free allowances can save a surprisingly large amount - however it is important to understand the difference between tax avoidance and tax evasion. The latter is defined as not paying the tax legally required, and can be a criminal offence.
A tax lawyer can check that the correct amount of tax is being paid, whilst ensuring that any and all reliefs offered by the government are being taken advantage of.
Using Judicial ERP, you can find the right solicitor for your money and tax issues.