VAT in Nigeria 2026: a small-business guide to the 7.5% rate and new input-VAT recovery

Value Added Tax is the tax most Nigerian small businesses touch every single day — on sales, on supplier invoices, on almost every receipt. The 2025 tax reforms, effective 1 January 2026, kept the headline rate at 7.5% but changed one thing that quietly matters a great deal to SMEs: which input VAT you can now reclaim. This guide covers registration, output vs input VAT, the new recovery rules, filing deadlines, penalties, and the general-ledger treatment — with a worked example. For the broader corporate picture, see Nigerian CIT and Development Levy under NTA 2025.

VAT in Nigeria at a glance

Sources: Nigeria Tax Act 2025 (NRS) · Nigeria Revenue Service · PwC Nigeria — Tax Administration.

1. The rate and who must register

Nigeria's VAT rate is 7.5%, unchanged by the 2025 reforms. What matters for a small business is whether you must register and charge it.

The registration threshold is turnover above ₦25,000,000 in any 12 consecutive months. Cross that line and you are required to register with the Nigeria Revenue Service, charge 7.5% on your taxable supplies, and file monthly. Below it, registration is voluntary.

Separately, the Nigeria Tax Act 2025 relieves qualifying small businesses from the burden of charging VAT even where registered, using the small-company test — broadly, modest annual turnover with total fixed assets under ₦250 million, and excluding professional-services firms. If your business is genuinely small and below these lines, you generally do not charge output VAT; if you are above the ₦25m registration threshold, you must. When in doubt for your specific turnover and asset profile, confirm your status with the NRS or your accountant, because the two concepts — the registration threshold and the small-business relief — are easy to conflate.

Two different lines. The ₦25m figure decides when you must register. The small-business relief decides whether a registered small company must charge VAT. Check both against your own numbers.

2. Output VAT vs input VAT — the mechanics

VAT is a tax on consumption that businesses collect on the government's behalf. Two flows:

• Output VAT — the 7.5% you add to your customers' invoices. You are holding this for the NRS.
• Input VAT — the 7.5% your suppliers charge you on your own purchases.

Each period you net the two and remit the difference:

VAT payable = Output VAT collected − Recoverable input VAT

If output exceeds input, you pay the difference to the NRS. If input exceeds output (common when you've just bought stock or equipment), the credit carries forward.

3. The big 2026 change: input VAT on services and capital assets

This is the reform that actually moves money for SMEs. Under the old regime, input VAT recovery was effectively restricted — input VAT on services and on fixed (capital) assets was largely not recoverable, so that VAT became a sunk cost baked into your prices.

Under the Nigeria Tax Act 2025, effective 1 January 2026, input VAT is recoverable much more broadly — including on services and on capital assets, not just on goods bought for resale. In plain terms: the 7.5% you pay on a business laptop, on delivery vehicles, on professional or software services can now be claimed back against your output VAT, instead of being stranded.

What this means in practice: review your recent purchases of equipment, software subscriptions, and professional services. Input VAT you previously wrote off may now be recoverable. Keep every valid VAT invoice — recovery requires documentation.

4. Worked example — a month of VAT

Take a small trading company, registered for VAT, in a single month:

• Sales (taxable supplies): ₦8,000,000 → output VAT = 8,000,000 × 7.5% = ₦600,000
• Goods bought for resale: ₦4,000,000 → input VAT = ₦300,000
• A delivery van (capital asset): ₦5,000,000 → input VAT = ₦375,000
• Accounting/software services: ₦800,000 → input VAT = ₦60,000

Recoverable input VAT (goods + capital asset + services, all now claimable under NTA 2025):

₦300,000 + ₦375,000 + ₦60,000 = ₦735,000

Net VAT position:

Output ₦600,000 − Input ₦735,000 = −₦135,000

Because input exceeds output this month (driven by the van and the services — both newly recoverable), there is nothing to pay and a ₦135,000 credit carries forward. Under the old rules, the ₦375,000 on the van and ₦60,000 on services would have been lost, the company would have shown ₦600,000 − ₦300,000 = ₦300,000 payable, and paid ₦300,000. The reform is the difference between paying ₦300,000 and carrying a ₦135,000 credit.

GL entries on a taxable sale and a capital purchase:

• On the sale: DR customer/cash, CR sales income, CR 2080 VAT Payable ₦600,000
• On the van purchase: DR fixed assets, DR 1060 VAT Receivable ₦375,000, CR cash/supplier

At period end, 1060 (input) is offset against 2080 (output); the balance is remitted or carried.

5. Zero-rated vs exempt — they are not the same

A frequent SME error is treating "exempt" and "zero-rated" as interchangeable. They have opposite consequences for input VAT recovery:

The distinction matters because a zero-rated supplier still recovers its input VAT (a genuine benefit), while an exempt supplier cannot — the input VAT becomes a cost. Check the current zero-rated and exempt lists in the tax law rather than assuming, as categories were adjusted under the 2025 reforms.

6. Filing, deadlines and penalties

VAT is filed monthly. The return and payment are due on or before the 21st of the month following the transaction month — whether or not you made any taxable sales that month. A nil return is still required.

Penalties under the Nigeria Tax Administration Act 2025:

Filing a nil return on time costs nothing; forgetting it starts the ₦100,000 clock. The remittance penalties bite hardest because VAT you collected is money you were holding for the NRS — not remitting it is treated seriously.

7. Common VAT mistakes SMEs make

1. Conflating the ₦25m registration threshold with the small-business relief. They are two different tests — check both against your turnover and fixed assets.
2. Still writing off input VAT on services and equipment. From 1 January 2026 much of this is recoverable. Stop expensing it by reflex.
3. Skipping the nil return. The 21st deadline applies even in a month with no sales.
4. Losing VAT invoices. No valid invoice, no input recovery — the documentation is the claim.
5. Confusing zero-rated with exempt. Zero-rated lets you recover input VAT; exempt does not.
6. Charging VAT while genuinely below the thresholds — or failing to charge it once above ₦25m. Both create reconciliation problems with the NRS.

AnooreHR tracks output and input VAT on every transaction, posts them to 2080 VAT Payable and 1060 VAT Receivable automatically, and applies the NTA 2025 recovery rules so input VAT on services and capital assets is captured rather than lost. Zero-rated items are defined in a profile pack — not hard-coded — so when the tax law's lists change, your books follow. Monthly VAT returns are prepared in the NRS format with the 21st-of-the-month deadline flagged. Book a demo or sign up free to see your VAT position computed on real invoices.

Frequently asked questions

Related: Nigerian CIT and Development Levy under NTA 2025 · Withholding tax on vendor payments under NTA 2025 · See pricing