PAYE Employer Obligations in Nigeria: State IRS Registration, Monthly Remittance & Annual Returns
As an employer in Nigeria, PAYE is your statutory duty — not an optional gesture. Understand employee tax tables, State IRS registration, Form H1 annual returns, and how to avoid the bank account freezes that come with PAYE default.
What is PAYE and Why is the Employer Liable?
Pay-As-You-Earn (PAYE) is the system under which employers deduct Personal Income Tax (PIT) from employees' salaries at source, each month, and remit the deducted tax directly to the relevant State Internal Revenue Service (SIRS).
Critically, under Section 81 of the Personal Income Tax Act (PITA) as amended, the employer — not the employee — is the statutory agent of the tax authority. If you fail to deduct or fail to remit PAYE correctly, the employer bears full legal liability for the shortfall, interest, and penalties, even if the employee has already been paid their gross salary.
The applicable State IRS is determined by where the employee resides, not where the company's office is located. A company headquartered in Victoria Island, Lagos, with an employee living in Maitama (Abuja) must remit that employee's PAYE to FCT-IRS — not LIRS.
⚠️Employer Liability Warning
Section 81(3) of PITA makes employers personally liable for PAYE amounts deducted but not remitted. Courts have upheld assessments, penalties, and interest charges directly against company directors where PAYE was withheld from employee salaries but diverted for company use.
PAYE Registration with Your State IRS
Before making your first hire, you must obtain an Employer PAYE Tax Code from the State IRS of the state where your employee(s) reside. This is a separate registration from your company's corporate TIN.
For Lagos-based employees, registration is via the Lagos Inland Revenue Service (LIRS) e-Tax portal at etax.lirs.net. For FCT (Abuja) employees, registration is via the FCT Internal Revenue Service portal at irs.fct.gov.ng. Other states operate their own portals or accept physical applications at state SIRS offices.
Documents Required for PAYE Employer Registration:
- ✓Certificate of Incorporation / Business Name Registration (CAC Status Report Form CAC 1.1)
- ✓Company Tax Identification Number (TIN) from NRS/FIRS
- ✓Completed PAYE Employer Registration Form (available on state IRS portal)
- ✓List of employees with names, designations, and annual gross emoluments
- ✓Registered office address in the relevant state (utility bill or lease)
- ✓Authorized signatory identification (national ID, international passport, or driver's license)
How to Calculate Employee PAYE: The 2026 Progressive Tax Bands
PAYE is calculated on each employee's Taxable Income, which is Gross Emolument less allowable statutory deductions. Apply the Consolidated Relief Allowance (CRA) of ₦200,000 plus 20% of Gross Income, pension contributions (8%), NHF (2.5% of basic), and life assurance premiums before computing tax on the residual.
The 2026 progressive tax bands under the amended PITA are applied to the net taxable income:
| Annual Taxable Income Bracket | PIT Rate | Tax on Full Bracket |
|---|---|---|
| First ₦800,000 | 7% | ₦56,000 |
| Next ₦2,200,000 (₦800,001 – ₦3,000,000) | 11% | ₦242,000 |
| Next ₦9,000,000 (₦3,000,001 – ₦12,000,000) | 15% | ₦1,350,000 |
| Next ₦13,000,000 (₦12,000,001 – ₦25,000,000) | 19% | ₦2,470,000 |
| Next ₦37,000,000 (₦25,000,001 – ₦62,000,000) | 21% | ₦7,770,000 |
| Above ₦62,000,000 | 24% | Tax on excess above ₦62M at 24% |
Monthly Remittance Deadlines and Remita Payment Steps
PAYE deducted from employee salaries each month must be remitted to the relevant State IRS by the 10th day of the following month. Most state IRS portals are integrated with the Remita payment platform.
To remit on Remita: log in at remita.net, select 'Government Payments', choose the relevant State IRS (e.g., 'Lagos Internal Revenue Service — PAYE'), enter your Employer PAYE Tax Code and the assessment period, input the total PAYE amount, and confirm payment. Download the Remita Retrieval Reference (RRR) as proof — you will need this for annual reconciliation.
💡10th of the Month Rule
If the 10th falls on a public holiday or weekend, remit on the last working day before the 10th. State IRS portals do not automatically grant grace periods, and penalties start accruing from the 11th of the month regardless.
The Annual PAYE Return: Form H1
In addition to monthly remittances, every employer must file an Annual PAYE Return (Form H1) with the relevant State IRS by January 31st of the following year. This comprehensive schedule covers every employee's gross emoluments, allowable deductions, taxable income, PIT charged, and tax remitted for all 12 months.
Form H1 is the mechanism by which the State IRS reconciles your monthly remittances against the actual annual tax due per employee. Discrepancies trigger employer assessments, demand notices, and field audit visits.
What Form H1 Must Contain for Each Employee:
- ✓Employee full name, residential address (not work address), TIN, and BVN
- ✓Gross annual emolument breakdown (basic, housing, transport, and all other allowances)
- ✓Allowable deductions claimed (CRA, pension contribution, NHF, life assurance)
- ✓Net annual taxable income after deductions
- ✓Annual PIT computed on the taxable income
- ✓Total PAYE actually deducted and remitted to the State IRS across all 12 months
PAYE Penalties for Employers
State IRS enforcement on delinquent PAYE employers has escalated sharply. The penalty structure under PITA Section 73 includes:
Failure to Register as an Employer: Fixed fine of ₦50,000 plus statutory interest on estimated tax from the first hire date.
Late Remittance: 10% of the PAYE amount outstanding plus 21% annual interest on unpaid balances for every month they remain outstanding.
Failure to File Form H1: ₦50,000 penalty plus potential field audit and re-assessment of the entire payroll for the year.
Issuing Misleading Employee Tax Certificates: Criminal referral under PITA Section 93 — individual directors can face personal prosecution.
Frequently Asked Questions
Common Founder Questions on Tax Reform & Filings
Do remote employees working from different states create PAYE complications?▾
Yes. A fully remote employee working from Port Harcourt means you must register with Rivers State IRS for that employee and remit their PAYE there — even if your company operates in Lagos. The residence-based PAYE rule applies strictly regardless of remote work arrangements.
What if I pay my staff in cash and don't run a formal payroll?▾
Informal cash payments do not exempt you from PAYE obligations. Under PITA, any payment made to an employee — cash, kind, allowances, or benefits — is part of gross emolument. State IRS auditors are trained to identify informal payroll structures.
Can employees file their own Personal Income Tax without PAYE?▾
Employees whose sole income is from one employer covered by PAYE do not need to file separate PIT returns — PAYE is their final tax. However, employees with additional income sources (rental, freelance, investments) must file a Direct Assessment return with their State IRS by March 31st each year.
Is a managing director's salary subject to PAYE?▾
Yes. Director fees, salaries, and all executive remuneration paid to resident directors are subject to PAYE under PITA. Non-executive directors who are not employees are subject to 10% Withholding Tax on their sitting allowances and fees instead.