Why You Should Hire A Virtual Accountant

A Virtual Accountant is a professionally qualified accountant that can handle all your accountancy including tax services, virtually, online.

Starting and operating a small business takes time and focus. You want to concentrate your energy on developing a strong brand and increasing your market share. While you need accurate financial and accounting information to run your business efficiently, you don’t need the distractions of “keeping the books” in-house. That’s where virtual accounting services come in. 

Apparently, entrepreneurs are very busy as they have to look after many aspects of their business such as selling products or services, running the business back end, scheduling order and so much more. Undoubtedly, it’s hard to keep up with the accounting tasks, such as tracking your income and expenses on a daily basis.

 Also, hiring an in-house accountant or bookkeeper can cost you more as you might need accounting or bookkeeping services for few hours a month. If you hire a full-time employee, you need to provide all the employee benefits such as incentives, salaries, leaves, etc., which increases your employee turnover and administrative burden.

Tracking your income and expenses on a daily basis,is now made easy,with the help of a virtual accountant.

The following are the more reasons you should hire a virtual accountant:

1.  Virtual Accountant reduces your overhead expenses.

You can save a lot on unnecessary expenditures by hiring a virtual accounting service,which  work on a contract basis, eliminating the need to hire an employee and pay vacation time, benefits, payroll taxes, additional office space, etc.

As remote financial experts, virtual accountants spread these costs across their client base to maximize quality and minimize costs per client. They address your internal record-keeping risks and provide fully-vetted information you can rely on.

Money apart, you also save time spent on recruiting an internal bookkeeper, training and managing them.

2. Easy Access

 Virtual accountants perform their tasks online; you don’t have to set a separate accounting department. They have their own office space and you can easily connect yourself with them through a simple email or phone call. You can also  hold virtual meetings with your accountant, via many platforms like Skype or Zoom. Virtual accountants have very flexible schedules and are available to meet your needs and address your questions.

VAs provide real-time access to your financial reports anytime and anywhere you want. You can ask for your financial reports whenever you want. You have your data at your fingertips when you need it, via any device. Virtual accounting services are delivered by experienced professionals.

3. Leverages on technology

VA’s should allow you a single point of contact for all your needs and questions, backed up by a team. Unlike other bookkeeping options, you don’t have to worry about losing the privacy of your data. Your data is always accessible to you through secure logins, and always timely and accurate.

Virtual accountants help you leverage technology for your business. They provide 24×7 record access to you through a secure internet connection. The team’s software specialist suggests apps and functions to help you get the most out of its services

4. Gives you more time to focus on your business.

By subcontracting the recordkeeping to a trusted service provider, you free yourself from the tedious tasks of managing accounts and taxes.  You can utilize this time to review and manage company productivity, the recruitment process or other current business planning needs.

5.    High Skills and Experience

Virtual accountants are highly qualified experts that are capable of performing bookkeeping tasks such as accounts payable and receivables, bank reconciliation, tax preparation etc. More the experience, more you can trust the work abilities of a virtual accountant.

6.    Less Training Expenses

Virtual accountants keep themselves updated with every latest technology and government norms. This saves your cost of training and orientation programs that you might have to spend in your in-house accounting department.

7.    A Clear Picture of Your Finances

Virtual accountants take the entire accounting burden off your shoulder and enable you to focus on your core business operations. They give a clear picture of your finances and help you make an informed business decision.

8.    Valuable Advice for Business Growth

 Virtual accountants not only manage your accounting processes but also give you sound financial advice that would aid your business growth and expansion.

9.  Affordable Fees

You can get virtual services at a competitive fee that suits your budget, unlike the higher cost associated with in-house accounting department. Hiring a virtual accountant eliminates costs of salaries for employees, providing health insurance, etc.

10.    Saves Cost on Software Investment

 When you choose virtual accounting services for your business you don’t have to invest on different accounting software or worry about installing upgrades, as your virtual assistant is well-equipped with the latest software and upgrades.

11.    Improves Cash Flow

 Virtual accountants efficiently manage all the aspects related to your cash flow. They record all the income and expenses and provide you useful financial insights.

12.    Prepares You for Taxes

It is quit stressful and costlier to wait until tax season, before monitoring your business accounting; your virtual accountant will maintain all your financial statements accurately and prepare your taxes.

13.    Eliminates Time Constraints – When you hire a virtual accountant, you can ask them to accomplish your accounting task anytime, as they work on holidays and round the clock. They work on different online portals, which give you access to your financial data.

14. Offers extra services to help you manage your business

With their team of accountants, VA’s can provide you with additional information services at your request. If you want to look at sales growth over a specific period, for example, you can work with your VA team to produce the report you need. Receiving ad hoc reports, upon request, makes managing your business easier and provides timely information that helps you make better business decisions.

Do you need virtual accountancy and tax services? Send your request to virtual@deeno.com.ng

States ,Not FG Should Collect VAT, Income Taxes, Others

The Federal High Court sitting in Port Harcourt has declared that it is the Rivers State Government and not the Federal Inland Revenue Services (FIRS), that should collect Valued Added Tax (VAT) and Personal Income Tax (PIT) in the State.

The court, presided over by Justice Stephen Dalyop Pam, has also issued an order of perpetual injunction restraining the Federal Inland Revenue Service and the Attorney General of the federation, both first and second defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, personnel income tax and Value Added Tax.

Justice Pam made the assertion while delivering judgement in Suit No. FHC/PH/CS/149/2020, filed by the Attorney General for Rivers State (plaintiff), against the Federal Inland Revenue Service (first defendant) and the Attorney General of the Federation (second defendant).

The Court, which granted all the eleven reliefs sought by the Rivers State Government, stated that there is no constitutional basis for the FIRS to demand for and collect VAT, Withholding Tax, Education Tax and Technology levy in Rivers State or any other State of the Federation, being that the constitutional powers and competence of the Federal Government is limited to taxation of incomes, profits and capital gains which does not include VAT or any other species of sales, or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the Constitution.

The judge dismissed the preliminary objections filed by the defendants that the Court lacks jurisdiction to hear the suit and that the case should be transferred to Court of Appeal for interpretation.

The court agreed with the Rivers State Government that it is the State and not FIRS that is constitutionally entitled to impose taxes enforceable or collectable in its territory of the nature of consumption or sales tax, VAT, education and other taxes or levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended.

Also, the court declared that the defendants are not constitutionally entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on the residents of Rivers State and indeed any state of the federation.

Among the reliefs sought by the Rivers State Government, is a declaration that the constitutional power of the Federal Government to impose taxes and duties is only limited to the items listed in items 58 and 59 of Part 1 of the second schedule of the 1999 constitution as amended.

The Rivers State Government had also urged the court to declare that, by virtue of the provisions of items 7 and 8 of the Part II (Concurrent Legislative List) of the Second Schedule of the constitution, the power of the Federal Government to delegate the collection of taxes can only be exercised by the State government or other authority of the State and no other person.

The State government had further asked the court to declare that all statutory provisions made or purportedly made in the exercise of the legislative powers of the Federal Government, which contains provisions which are inconsistent with or in excess of the powers to impose tax and duties, as prescribed by items 58 and 59 of the Part I of the Second Schedule of the 1999 constitution, or inconsistent of the power to delegate the duty of collection of taxes, as contained in items 7 and 8 of Part II of the Second Schedule of the Constitution, are unconstitutional, null and void.

Lead counsel for the Rivers State Government, Donald Chika Denwigwe (SAN), who spoke to journalists after the court session, explained that the case is all about the interpretation of the constitution as regards the authority of the government at the State and Federal levels to collect certain revenue particularly, VAT.

“So, during the determination of the matter, some issues of law were thrown up like, whether or not the case should be referred to the Court of Appeal for the determination of some issues.

“The court noted that the application is like asking the Federal High Court to transfer the entire case to the Court of Appeal. In which case, if the court so decides there will be nothing left to refer back to the Federal High Court as required by the constitution.

According to Denwigwe, the court refused that prayer and decided that the case was in its proper place before the Federal High Court and to determine it.

Donald Chika Denwigwe, SAN (middle) lead counsel to Government of Rivers State and Ken C.O. Njemanze, SAN (left) briefing journalists after the Federal High Court in Port Harcourt on Monday declared FIRS collection of Value Added Tax in Rivers State unconstitutional.

Speaking on the implication of the judgement, Denwigwe said it is now, unlawful for such taxes as VAT in Rivers State to be collected by any agency of the Federal Government.

“In a summary, it is a determination that it is wrong for the Federal government to be collecting taxes which are constitutionally reserved for the State governments to collect. The implication of the judgement is that the government (Federal and State) as an authority under the constitution, should be advised by the judgement that it is the duty of all government authorities to comply with and obey the law so long as the court has interpreted it and said what that law is.

“So, in other words, the issue of Value Added Tax (VAT) in the territory of Rivers State and Personal Income Tax should be reserved for the government of Rivers State.”

Counsel to FIRS, O.C. Eyibo said he will study the judgment and advise his client.

About Angel Investors

Debt financing and equity financing are common sources of funds a business owner would think of when starting a new venture. When business loans, financial institutions, and other sources of funding however, turn their backs on unproven business startups, this is where angel investors come in.   Angel Investors are individuals or groups with tremendous liquid assets working to provide funds to aid startups especially during the period of business development. Some angel investors even become an angel investment network and venture capitalists with enough funding to help materialize risky business ideas usually started by a small business.   They are referred to as “angels” because they provide angel funding on startups with high risks in exchange for some degree of ownership of the company usually in the form of equity. Moreover, angel investors sometimes provide more than just funds to a startup. They sometimes get involved in creating or expanding a company’s business strategy.   There are angel investors that give advice to a company’s management team and may sometimes participate in monitoring operations and providing necessary connections to ensure high rates of return on their invested capital. Angel investors may be the answer you are looking for if you are planning on starting your business and if investor search is proving to be futile.

In a usual setup, an angel investor usually anticipates a 20-50% rate of return for their angel investment. This percentage range is the ideal figure for a business owner to target when aiming to raise angel funds and convince angel investors to invest in their business. While a high return on investment is ideal, angel investors are also realistic in calculating the return on invested capital.

The internal rate of return, or simply rate of return, required for every kind of investor including angel investors, venture capitalists, venture capital firms or any angel financing company is unique to them. An angel investor investment is a form of private equity paid to business startups so they proceed with business development.requently Asked Questions

Q1. Why are they called angel investors?

Debt financing and equity financing are common sources of funds a business owner would think of when starting a new venture. When business loans, financial institutions, and other sources of funding however, turn their backs on unproven business startups, this is where angel investors come in. They are individuals or groups with tremendous liquid assets working to provide funds to aid startups especially during the period of business development. Some angel investors even become an angel investment network and venture capitalists with enough funding to help materialize risky business ideas usually started by a small business. They are referred to as “angels” because they provide angel funding on startups with high risks in exchange for some degree of ownership of the company usually in the form of equity. Moreover, angel investors sometimes provide more than just funds to a startup. They sometimes get involved in creating or expanding a company’s business strategy. There are angel investors that give advice to a company’s management team and may sometimes participate in monitoring operations and providing necessary connections to ensure high rates of return on their invested capital. Angel investors may be the answer you are looking for if you are planning on starting your business and if investor search is proving to be futile.

Q2. What is a good ROI for angel investors?

In a usual setup, an angel investor usually anticipates less than a 20-50% rate of return for their angel investment. This percentage range is the ideal figure for a business owner to target when aiming to raise angel funds and convince angel investors to invest in their business. While a high return on investment is ideal, angel investors are also realistic in calculating the return on invested capital.

The internal rate of return, or simply rate of return, required for every kind of investor including angel investors, venture capitalists, venture capital firms or any angel financing company is unique to them. An angel investor investment is a form of private equity paid to business startups so they proceed with business development. The rate of return or return on investment must be explicitly defined in a company’s business plan presented to angel investors or any angel networks.

The business plan is what entrepreneurs make when pitching their ideas to potential angel investors or sometimes an angel capital association. The business plan must contain an executive summary that effectively relays strategies and plans for a great business projection. Other important matters to consider before any prospective investor can evaluate the rate of return for their investments are pre-money valuation and seed capital association. However, it is not the most important and game-changing process in the field of business administration. It is the evident impact investment to materialize the business and the surge of value and ownership equity the business possesses in relation to the capital. Another powerful arsenal to gauge the rate of returns is unique business ideas in relation to business venture development, especially those that are aiming to dominate the market share for potential customers that truly disrupt competition. One of the primary virtues whether investing in startup businesses or seasoned businesses is due diligence to prevent other mistakes entrepreneurs make and prevent loss of money. The signing of a non-disclosure agreement and the review of the necessary legal documents by your legal team are also important matters to consider before negotiating the rate of return for angel capital in hopes of improving your private equity. It should also be the priority of the management team to keep track of the negotiations. They should always be vigilant to maintain a balance of looking up to the accredited investor’s money interest and how it is evaluated with other startup businesses in regards to their entrepreneurial undertakings. Having your management team monitor angel investors’ investments could be challenging but the benefits will surely be rewarding in the long run.

Q3. How do you negotiate with angel investors?

The usual setup in the industry is that professional angel investors will accumulate a 20% minimum to 50% maximum of the company with regards to their funding. While this is the standard setup that is present in the usual cap table, one thing that business owners can negotiate is the amount angel investors receive as dividends. If there are reservations on your part as a business owner and you perceive that your angel investors are asking for too much of a percentage, then you should not hesitate to negotiate right after the management team’s offer is first given. It is also essential that you clearly understand the terms of the possible impact of the investment of angel investors to the way you run your business, weigh in the pros and cons, consult your family and friends, conduct research on search engines, investment network of accredited investors, or social media platforms, and check the details before signing into an agreement and becoming part of the investment portfolio of angel investors.

Q4. Do angel investors invest in ideas?

Business ideas that seem feasible, have an effective business administration, a definitive mission and a viable timetable; can be something angel investors consider a priority to invest in. If the business plan is clear, concise, and understandable it could be very appealing to active angel investors. The transactions these active angel investors enter into are solely based on trust that their money will be effectively used as a means to improve business operations that will make a company profitable; and in return improve ownership equity and provide bountiful results for the angel investors. Of course, it is certain, that these angel investors require signs of potential and proof that you will be able to deliver the promised return by presenting a reliable cap table or ensure successful exits.

Q5. Why do angel investors invest in startups?

According to some related articles, diversification of portfolio companies and improvement of investment networks are the main reasons why seed investors or angel funders are interested in investing in startups. Despite entering into a very risky deal, angel investors also perceive this action as a very rewarding course if successful and would appreciate the fact that they are the primary source of funding that the business can rely on. On the other hand, there are angel investors that simply want to improve their investment profile or take part in unveiling new technologies, new business setups, and up-to-date ideas that could range from real estate up to the field of insurance companies. Whatever their goal is, it is important to understand the motivation behind these angel investors in order for you and your business to convince them to come on board. Once you understand the styles and strategies of these angel investors pitching your business ideas to them will be easy.

Q6. What makes a company attractive to angel investors?

Companies with a solid business plan and realistic and attainable projections are very appealing to angel investors and venture capital networks. Another important factor is the charisma, experience, skills and dedication to the profitability of the founder. If a seed investor finds a certain invention or technology of various founders to be disruptive in the competition, they will also be interested to initiate contact to serve as an addition to their investment profile. At present, many angel funders or angel investors serve as primary drivers for the success in Silicon Valley as it is known to be the home to many startup technology and real estate companies that have reached international business status. Angel investors also invest in novel ideas with a potential to solve relevant problems and in turn change the world. Altruistic angel investors sometimes even invest in non-profits that solve community problems. It is important to understand the kind of angel investors you will be pitching your ideas to.

Do you need an angel investor?

Contact Deeno at once.

Nigerian Tax Law Requires Tenants to Deduct Withholding Tax on Rent, Also Prescribes Penalty

According to section 79 the Companies Income Tax Act(CITA), a company must deduct 10% withholding tax(WHT), before paying or crediting the landlord with the balance. The company paying such rent shall, at the date when the rent is paid or credited, whichever first occurs, deduct withholding tax and shall forthwith pay over to the Board the amount so deducted. 

So the withholding tax must be deducted even when the landlord was yet to be paid, provided the rental liability has been ascertained, acknowledged and recorded in favour o f the Landlord.

The state government Board of Internal Revenue collects WHT from Individuals under the Personal Income Tax Act, whilst the Federal Inland Revenue collects tax on behalf of the Federal Government under the Company Income Tax Act.

Illustration.

Assume XYD Ltd normally prepays its office rent to the Landlord on the first working day of December, each year, at the rate of N800, 000 per annum. The accounting year of the company runs from January to December, same with the rental period. However due to cash flow challenges, the rent was subsequently paid on February 2 3, 2021.

The company must have withheld N80, 000 and credited the landlord with the balance of N720, 000,in its financial statement as at December 2020. The tax authority is not interested in if or when the Landlord was eventually paid.

Persons authorized to deduct tax includes government departments, parastatals, statutory bodies, institutions and other establishments approved for the operation of Pay As You  Earn System. 

 The tax, when paid over to the Board, shall be the final tax due from a non‐resident recipient of the

payment. 

 In accounting for the tax so deducted to the Board, the company paying the rent, shall state in writing the following particulars: 

(a)   the gross amount of the rent payable per annum; 

(b)   the name and address of the recipient and the period in respect of which such rent has 

    been paid or credited; 

(c)   the address and accurate description of the property concerned; and 

(d)   the amount of tax being accounted for. 

The tax law also states that any reference to rent in  section 79 shall be construed whenever necessary as including payments for the use or hire of any equipment, payments for charter vessels, ship or aircraft and all such other payments for the use of or hire of movable and immovable property.

Penalty for non deduction and remittance

Any person who does not deduct withholding tax on rent or having deducted fails to pay to the Board within thirty days from the date the amount was deducted or the time the duty to deduct arose, shall be guilty of an offence and shall be liable on conviction to a fine of 200 per cent of the tax withheld or not remitted, as the case may be. 

In our illustration above, the duty to deduct arose as at December 30, 2020 and the remittance was due latest January 30,2021.

Where the person that was suppose to deduct withholding tax is a ministry, department, parastatal, institution or an agency of the Federal or a State Government or is a local government, the Tax Board may authorise the Accountant‐General of the Federation in writing to deduct from the allocation of such Federal ministry, department, parastatal, institution or agency of the State Government or local government such amount of tax deductible plus interest at the prevailing commercial rate. 

 Tax deducted under section 79 of CITA shall be paid to the Board in the currency in which the deduction was made. 

SYNOPSIS OF COMPANY INCOME TAX IN NIGERIA

The Company Income Tax Act (CITA) is the principal law that regulates the taxation of companies in Nigeria.

The Federal Inland Revenue Service (FIRS) is the only agency empowered to administer companies income tax(CIT) in Nigeria. Thus all CIT returns must go to FIRS.

Companies Income Tax (CIT) is a charge on the profits of companies registered in Nigeria. It also includes the tax on the profits of foreign companies carrying on any business in Nigeria. The CIT is paid by both private and public limited liability companies

Resident companies are liable to corporate income tax (CIT) on their worldwide income while non-residents are subject to CIT on their Nigeria-source income. Corporate income tax is based on taxable profit, derived from accounting profits adjusted for tax purposes.

Types of CIT Assessment

  • Best of Judgment (BOJ): Here, the FIRS uses its best of judgment initiative if the tax payer does not have any reliable financial records or no returns were submitted to the tax authority.
  • Self-Assessment: Here, the company is allowed  to self estimate its tax liability and also pay  by installment . Self-assessment of tax payable is provided for under section 53 of the Company Income Tax Act (CITA), 2011.

The Currency of Assessment

This makes provision for the currency of assessment of tax payable by a company as stated under section 54. Under this section, the Act provides that, notwithstanding anything to the contrary in any law, an income tax assessment under sections 52, 53 or 55 of this Act shall be made in the currency in which the transaction giving rise to the assessment was effected.

Company Income Tax Rates

The CIT is currently charged at the rate of 30% for companies having more than N100 Million Naira turnover. It is also charged at the rate of 20% for companies with a turnover between N25 Million and N100 Million. The tax is assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment).

The companies having less than N25 Million turnover are not liable to pay company income tax in line with the Finance Act 2019.

In respect of business profits, a non-resident company that has a fixed base or a permanent establishment (PE) in Nigeria is taxable on the profits attributable to that fixed base. As such, it is required to register for CIT and file its tax returns.

Allowable Deductions

In ascertaining the profits under the CITA, there are certain deductions that are allowable. Section 24 of CITA fully encapsulates the deductions allowable in determining the taxable profits of the company. The Section 24 provides that “save where the provisions of subsection (2) or (3) of section 14 or 16 of this Act apply, for the purpose of ascertaining the profits or loss of any company of any period from any source chargeable with tax under this Act, there shall be deduction all expenses for that period by that company wholly, exclusive, necessarily and reasonable incurred in the production of those profits.”

Section 24 further includes the following categories of deductions:

(a) Any sum payable by way of interest on any money borrowed and employed as capital in acquiring the profits;

(b) Rent for that period, and premiums the liability for which was incurred during that period, in respect of land or building occupied for the purposes of acquiring accommodation occupied by employees of the company.

(c) In the case of any property-holding company

-expenses attributable to the maintenance of the property,

-directors’ remuneration, which shall not exceed N10,000 per annum in respect of each director, and the number of directors to be so remunerated shall in no case exceed three;

(d) Any outlay or expenses incurred during the year in respect of salary, wages, or other remuneration paid to the senior staff and executives. Cost to the company of any benefit or allowance provided for the senior staff and executives which shall not exceed the limit of the amount prescribed by the collective agreement between the company and the employees.

(e) Any expenses incurred for repair of premises, plant, machinery or fixtures employed in acquiring the profits.

(f) Bad debts incurred in the curse of a trade or business proved to have become bad during the period for which the profits are being ascertained.

(g) Any contribution to a pension, provident or other retirement benefits fund, society or scheme approved by the Joint Tax Board under the powers conferred upon it by paragraph (g) of section 85 of the Personal Income Tax Act.

(i) in the case of profits from a trade or business, any expense or part thereof (i) the liability for which was incurred during that period wholly, exclusively, necessarily and reasonably for the purposes of such trade or business and which is not specifically referable to any other period or periods, or

(ii) the liability for which was incurred during any previous period wholly, exclusively, necessarily and reasonably for the purpose of such trade or business and which is specifically referable to the period of which the profits are being ascertained;

Section 25 and 25A of CITA also provide for deductions of donations made to fund, body or institutions in Nigeria for the purpose of ascertaining the profits. Section 26 of the Act permits a deduction for the purpose of research and development, provided such a deduction does not exceed 10% of the profit ascertained before any deductions.

Deductions Not Allowed

Section 27 addresses the deductions not allowed in ascertaining a company’s profits. The section provides as follows:

Notwithstanding any other provision of this Act, no deduction shall be allowed for the purpose of ascertaining the profits of any company in respect of-

  • Capital repaid or withdrawn and any expenditure of a capital nature;
  • Any sum recoverable under an insurance or contract of indemnity;
  • Taxes on income or profits levied in Nigeria or elsewhere, other than tax levied outside Nigeria on profits which are also chargeable to tax in Nigeria where relief for the double taxation of those profits may not be given under any other provision of this Act;
  • Any payment to a savings, widows and orphans, pension, provident or other retirement benefit fund, society or scheme except as permitted by paragraph (g) of section 24 of this Act;
  • The depreciation of any asset;
  • Any sum reserved out of profits, except as permitted by paragraph (f) of section 24 or 25 of this Act or as may be estimated to the satisfaction of the Board, pending the determination of the amount, to represent the amount of any expense deductible under the provisions of that section, the liability for which was irrevocably incurred during the period for which the income is being ascertained;
  • Any expense of any description incurred within or outside Nigeria for the purpose of earning management fee unless prior approval of an agreement giving rise to such management fee has been obtained from the Minister;
  • Any expense whatsoever incurred within or outside Nigeria as management fee under any agreement entered into after the commencement of this section except to the extent as the Minister may allow;
  • Any expense of any description incurred outside Nigeria for and on behalf of any company except of a nature and to the extent as the Board may consider allowable.

Taxable Profit

 The taxable profit is arrived at after adding the balancing charge to the adjusted profit while subtracting the capital allowance, balancing allowance and loss relief. The relevant tax rate is applied on the Taxable Profit.

Taxable Profit =Adjusted Profit   -Balancing Allowance+ Balancing Charge-Capital Allowance-Loss Relief

Computation of Adjusted Profit

Adjusted profit is computed after adding back, disallowed expenses and deducting allowable expenses and incomes exempted. The value derived from this computation is the adjusted profit and at this point, the education tax rate can also be deducted. The education tax rate is 2% of the adjusted profit.

Computation of Balancing Charge or Allowance

Balancing Charge or Allowance can only occur when an item of plant, property or equipment had been disposed of.

Balancing Charge = Disposal Proceeds – Tax Written Down Value

Where Disposal proceeds > Tax Written Down Value

If Disposal Proceeds < Tax Written down Value, the we have Balancing Allowance

Tax Written Down Value = Historical (Book) Value- Accumulated Capital Allowance

What is Loss Relief?

No tax is due to be paid by a company where loss is incurred except, in the case of minimum tax provision.

– Losses incurred in the preceding year of assessment in any trade or business is to be deducted from current year, adjusted to arrive at assessable profit provided that certain conditions are fulfilled such as:

(a) The aggregated deduction from assessable profit or income in respect of any such loss exceeds the amount of such loss;

(b) The deduction for any year of assessment does not exceed the assessable profits in which the loss was incurred;

– With effect from CITA Amendment in 2007, losses can now be carried forward indefinitely;

 Note:

  • Relief of losses is automatically granted to a company, the grant does not require a formal application;
  • The loss from source A should not be relieved against profit from source B.
  • Where an aggregated loss exceeds the actual loss incurred in business or trade, the law provides that the amount of loss to be relived should not exceed the actual loss incurred.
  • Where a business has ceased operations, and there are still some unrelieved losses, such losses can no longer be carried forward as they are deemed to be terminal losses, and therefore deemed to be permanently lost.

15 Goodies about the new CAMA 2020

President Muhammadu Buhari signed into law the Companies and Allied Matters Act (CAMA) on August 7, 2020. The new CAMA is Nigeria’s most significant business legislation in three decades and it introduces new provisions that promote ease of doing business and reduces regulatory hurdles.

1. Provision of single-member/shareholder companies – S.18(2) of the new CAMA now makes it possible to establish a private company with only one (1) member or shareholder.

2. Introduction of Statement of Compliance – S.40 (1) of the new Act introduces the Statement of Compliance which can be signed by an applicant or his agent, confirming therein that the requirements of the law as to registration have been complied with. This serves as an alternative to the requirement to submit a Declaration of Compliance, which must be signed by a lawyer or attested to before a notary public. A Statement of Compliance need not be signed by a lawyer.

3. Replacement of Authorized Share Capital with Minimum Share Capital – The concept of “authorised share capital” has now been replaced in S.27 of the Act with the concept of “minimum share capital”. With minimum share capital, promoter(s) of a business need not pay for shares that are not needed at a specific time.

4. Procurement of a Common Seal is no longer a mandatory requirement – The procurement of a Common Seal is no longer a mandatory requirement according to

S.98 of the new CAMA: Every company is required under the previous Act to have a common seal, the use of which is to be regulated by the Articles of Association. This amendment is in line with international best practices as most jurisdictions around the world have expunged the requirement from their respective laws.

5. Provision for electronic filing, electronic share transfer and e-meetings for private companies – The new CAMA makes provision for electronic filing, electronic share transfer and e-meetings for private companies. S.861 of the new CAMA provides that certified true copies of electronically filed documents are admissible in evidence, with equal validity with the original documents. S.176(1) also provides that instruments of transfer of shares shall include electronic instruments of transfer.

6. Provision for virtual Annual General Meetings – The new CAMA also provides for remote or virtual general meetings, provided that such meetings are conducted in accordance with the Articles of Association of the company. This will facilitate participation at such meetings from any location within and outside the shores of the country, at minimal costs. This is especially relevant today given the disruptions caused by the Covid-19 pandemic to company operations around the world.

7. Exemption from appointing Auditors – Small companies or any company having a single shareholder are no longer mandated to appoint auditors at the annual general meeting to audit the financial records of the company. S. 402 of the new CAMA provides for the exemption in relation to the audit of accounts in respect of a financial year.

8. Exemption from the appointment of company secretary – The appointment of a Company Secretary is now optional for private companies. According to S. 330 (1) of the new CAMA, the appointment of a company secretary is only mandatory for public companies.

9. Creation of Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs) – The new CAMA introduces the concept of Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs). This combines the organisational flexibility and tax status of a partnership with the limited liability of members of a company.

10. Reduction of Filing Fees for Registration of Charges – Under S. 223 (12) of the new Act, the total fees payable to the CAC for filing has been reduced to 0.35% of the value of the charge. This is expected to lead to up to 65% reduction in the associated cost payable under the regime.

11. Merger of Incorporated Trustees – S. 849 of the new Act provides for merger between two or more associations with similar aims and objects under such terms and conditions as may be prescribed by the CAC.

12. Disclosure of persons with significant control in companies – S.119 of the new Act introduces new transparency provision with an obligation for entities to disclose capacity in which shares are held, either as a beneficial owner or as a nominee of an interested person.

13. Restriction on Multiple Directorship in Public Companies – S.307(1) of the Act prohibits a person from being a director in more than five (5) public companies at a time.

14. Business Rescue provisions for Insolvent Companies – The new Act introduces a framework for rescuing a company in distress and to keep it alive as against allowing such entity to become insolvent. Provisions were made with respect to Company Voluntary Arrangements (S.434 to S.442), Administration (S.443 to S.549) and Netting (S.718 to S.721).

15. Enhancement of Minority Shareholder Protection and Engagement – S. 265 (6) restricts firms from appointing a director to hold the office of the Chairman and Chief Executive Officer of a private company.

How Your Business Can Survive The COVID-19 Pandemic

Small businesses will be the hardest hit from the current COVID-19 pandemic. The bigger businesses have a better chance of surviving. Small businesses tend to live only with a few months of cash flow, so when something as significant as the pandemic hits, it can be devastating not only for the small business owner, but also for their employees  

So, how can small businesses survive the turbulent times coming ahead in 2020 and beyond? There’s no easy answer; however, here are a few points to start implementing and planning at least for the next three months.

1. Business owners should be calm and not panic

This can be difficult especially when cash is running out, but remember to take care of yourself in a way that works for you- for instance, eat well, and try to get some exercise in. Taking care of yourself will help you to keep calm, which in turn will also mean keeping your staff calm, and ultimately, a healthier mindset for everyone to come up with innovative ideas to move forward. If faced with some difficult decisions, take time to balance yourself and your mind before taking any drastic decisions. In what is a very dynamic and rapidly changing situation, sometimes taking a step back to reassess, asking for trusted opinions, and also keeping perspective will help. Things will get better, and you aren’t in this alone. Ask for emotional support where you can, and when you need it.

2. Tap into palliatives and resources provided by government and financial institutions

Governments around the world are already putting together initiatives to support small business owners, and this is something that is evolving on a daily basis. Be up to date with how your governments can help cut costs, as well as other important institutions, such as banks who also have a social responsibility. If you’re registered in more than one market, explore support options in both markets.

For example, you can find out more about the Nigerian government support for small businesses, such as the CBN N50billion Targeted Credit Facility.

3. Develop a three-month financial plan

Every small business usually has the same key expenses, which include employee salaries, office rent, and utility bills. Further expenses range from industry to industry.

Speak to who you need to pay in the next three months (landlord and suppliers), and find out what options you have to spread out the costs. Chances are they may already have options in place, or will be understanding, as it’s in their interest to keep your business. Always be careful when you come up with payment plans with other small businesses, as they also need to keep afloat too, so this should be fair for both of you.

Look at your personal finances, and speak to people you may support to have a realistic discussion on how to control your personal spending for the next three months. What costs are necessary, what can be put on hold? If you have a partner supporting you as you grow your business as the breadwinner, have an open and honest discussion with them about your immediate and long-term plans for the business.

Also, look at ways you can cut costs. But use this as a last measure after we have seen at least two months of damage from the COVID-19 pandemic. Your biggest costs would usually be your staff and your office rent. You could perhaps freeze hiring any more full-time employees, and instead work on a project basis with freelancers. You could also consider downsizing your office, and using a co-working space or virtual office, to have more affordable and flexible payment terms.

4. Be Innovative and explore inherent opportunities

It’s never nice to capitalize on events such as this, but they can also be a wake-up call to reconsider how you have been doing business. In this case, is your business model able to survive the changes that will come from the COVID-19 pandemic? How do you expect your customers to behave moving forward? What will and won’t matter to them, and how can you accommodate who will likely be a new type of customer? Can you digitize any of your products or services, and start offering them online? Can you implement technology to balance any loss of earnings by offering new ways to connect with your customers?

5. Train your staff

Wherever possible, try your best to keep your staff– they rely on you, and if you have managed a good team, they should be supporting you. You could train your existing staff on additional skills, which could make them more productive and efficient, rather than hiring more staff. There’s plenty of online courses that are very affordable, and these will allow them to focus on other areas of the business when their department is down- for instance, your sales team could perhaps also help out the marketing team.  

Look for courses and resources that most match your needs and also your budget during this time.