A lot of what business owners think they know about PAYE in Nigeria stopped being accurate on 1 January 2026. The Nigeria Tax Act 2025 replaced the old system wholesale, not with a small adjustment to a rate or two. If you learned PAYE before this year and haven’t specifically checked what changed, there’s a good chance your current process is wrong in at least one place.

This piece covers what PAYE in Nigeria actually requires right now, and the specific misconceptions still doing the rounds among employers.

The current bands

PAYE in Nigeria is now calculated against these annual income bands, effective from 1 January 2026:

• ₦0 to ₦800,000: taxed at 0%
• ₦800,001 to ₦3,000,000: taxed at 15%
• ₦3,000,001 to ₦12,000,000: taxed at 18%
• ₦12,000,001 to ₦25,000,000: taxed at 21%
• ₦25,000,001 to ₦50,000,000: taxed at 23%
• Above ₦50,000,000: taxed at 25%

Before applying these bands, taxable income is worked out by taking gross emoluments and subtracting the employee’s pension contribution, NHF where it applies, any formally claimed Rent Relief, and a small number of other eligible deductions, such as qualifying life insurance premiums.

What actually changed, in plain terms

The Consolidated Relief Allowance, previously the higher of ₦200,000 or 1% of gross income, plus 20% of gross income, no longer exists. Neither does the old 1% minimum tax that applied regardless of other deductions. The old band structure, which ran from 7% up to 24% across six tiers, has been replaced entirely by the six bands listed above.

In its place is Rent Relief: 20% of annual rent paid, capped at ₦500,000. The important detail most employers miss is that this isn’t automatic. The law requires it to be “claimed in writing in such form as the relevant tax authority may prescribe.” An employee who hasn’t submitted a written claim doesn’t get the deduction, regardless of how much rent they actually pay.

Where PAYE goes, and by when

PAYE in Nigeria is owed to the State Internal Revenue Service of the employee’s state of residence, not the state where the company is headquartered. This distinction trips up a lot of businesses with remote staff or teams spread across multiple states, since it’s easy to assume PAYE follows the company rather than the employee.

The monthly remittance deadline is the 10th of the following month. Separately, by 31 January each year, employers must file an annual return covering every employee’s pay and tax for the year. Lagos’s revenue authority has been explicit on this point: the annual return is required even when every monthly PAYE payment was made on time. One doesn’t substitute for the other.

There’s also a newer requirement worth flagging. Employees themselves are now expected to file their own individual returns, separate from whatever their employer withholds and remits. That means PAYE mistakes that used to stay invisible to staff are increasingly visible to them, since they can see their employer’s filings reflected on the relevant state portal.

Common misconceptions still causing problems

“The old relief allowance still applies.” It doesn’t. Any calculation still referencing the Consolidated Relief Allowance is producing an incorrect number.

“Employees earning under ₦800,000 don’t need to do anything.” They owe 0% PAYE, but they’re still expected to file an annual return. Zero tax owed isn’t the same as no filing obligation.

“Rent Relief applies automatically once someone tells us their rent.” It requires a formal written claim, not a verbal mention or an assumption based on salary level.

“If we deducted the wrong amount, we can just recover it from the employee later.” Employers who fail to deduct correctly face a penalty of 40% of the amount that should have been deducted, calculated against the employer, not simply adjusted retroactively against the employee’s future pay.

“FIRS collects our PAYE.” FIRS no longer exists under that name. It’s now the Nigeria Revenue Service, and for most private-sector employees, PAYE is actually collected by the relevant State Internal Revenue Service, not the federal body at all.

“There’s still a 1% minimum tax as a floor.” That provision was abolished along with the Consolidated Relief Allowance. It no longer applies.

What getting it wrong actually costs

Failing to deduct PAYE correctly carries a 40% penalty on the amount that should have been withheld. Deducting it correctly but failing to remit it carries the full unpaid amount, plus a 10% administrative penalty, plus interest at the Central Bank’s Monetary Policy Rate, and in more serious cases, a criminal conviction carrying up to three years in prison. Filing an incomplete, inaccurate, or missing return adds ₦100,000 for the first month of default and ₦50,000 for each month after that.

These aren’t theoretical figures. Nigeria’s tax and pension enforcement has become measurably more active since the start of 2026, and PAYE specifically is easier to audit now that employees have visibility into their own employer’s filings.

Getting it right going forward

PAYE in Nigeria isn’t more complicated than it used to be, exactly, but it is genuinely different from what most business owners learned even a year or two ago. The safest approach is to treat every payroll cycle as though the rules could have shifted since the last one, because for most of 2026, they actually did.

Pension and NHF work alongside PAYE in every payroll cycle, and they carry their own set of common mistakes.

Pension and NHF work alongside PAYE in every payroll cycle, and they carry their own set of common mistakes. Our pension and NHF deductions guide covers what SMEs get wrong there.