Are you looking to get started as a Freelancer in Nigeria?
If yes, then you need this article
Basics of Freelancing
Freelancing is common in the technology and creative industries. A freelancer is an independent contractor . This they are not employees, they are not viewed as employees for tax and employment law purposes.
One of the drawbacks of freelancing is that there is no guaranteed payment. Payment for freelance work depends on the industry, skills, experience and location.
How is a Freelancer paid?
By custom, payment arrangements may be upfront, or upon completion. For more complex projects, a contract may set a payment schedule based on milestones or outcomes. A freelancers tax bill varies according to his or her income and expenses. This is different from an employee, who earns a guaranteed monthly salary, and can easily calculate his tax bill.
Understandably, majority of income earned from “side hustles” in Nigeria escape taxation. Recently the government announced its intention to enforce the Personal Income Act which makes it mandatory for all earned income to be taxed.
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Why does a freelancer need a Tax Professional?
The tax laws do not specify exactly what’s deductible for every business
Common side hustles in Nigeria include running a private taxi service (e.g. UBER), owning a thriving blog, running a barbershop, hairdressing salon or fashion boutique. It also includes part time make-up artistes, musicians or consultants, or traders of any kind.
Just like a regular business, every business incurs expenses, which are typically deducted from the income you make to determine what your taxable income (profit) is. However, not all expenses are allowed to be deducted before you arrive at your taxable income.
As a general rule, tax authorities require that a business expense must be both “ordinary and necessary”. An ordinary expense is defined as one that is “common and accepted in your trade or business”. While a necessary expense is defined as “helpful and appropriate for your trade or business”.
Can you see how confusing this can be for a person who is not a tax expert?
A tax expert will help you clarify deductible expenses applicable in your business.
Tax Rules change Frequently
Tax authorities regularly change their regulations. While some of these changes are straightforward, keeping track of all these changes so you can adapt your business policies is not.
Tax professionals make it their business to keep pace with tax regulations. As a result, you get timely and accurate advice.
Your Time is Money
The more time you spend on taxes, the less time you have to grow your business. Employees with a guaranteed paycheck might not lose out by taking time to do their taxes, but freelancers have to allocate their time wisely.
Outsourcing to a tax professional might just be a wise business decision.
Freelancers face a much higher chance of being penalised
Upon commencement of business you are obligated to register with the Federal Inland Revenue Service for a Tax Identification Number which you will need to pay your Company Income Tax (CIT), and also register for Valued Added Tax (VAT) collection.
Unfortunately, freelancers are unlikely to register with the tax authorities as and when due. When they do, it can be a challenge to keep their tax file updated.
A tax professional will keep you updated on your tax obligations and liabilities. That way you don not have to pay any penalties to the tax authorities.