Capital allowances for a Nigerian client: what to check
The checks a firm should make before claiming capital allowances in a Nigerian client's tax computation, from unpaid VAT to proration.
By Achekam · · 5 min read · For Accountants & audit firms in Nigeria
The fixed-asset schedule arrives from the client as a spreadsheet: additions for the year, a few disposals, and a column headed "tax" that someone filled in by applying last year's percentages. The total flows straight into the company income tax computation. Nobody has asked whether the generator was imported with duty paid, whether VAT was charged on the delivery van, or whether the new building is used partly for income that is not taxable.
Under the Nigeria Tax Act, 2025, and the NRS's circular on how company income tax is worked out, those questions decide whether the allowance can be claimed at all. A capital allowance schedule that skips them can overstate the claim even when every rate is right.
Allowances in place of depreciation
The NRS says capital allowances on qualifying capital expenditure, such as plant, machinery and industrial equipment, are claimed in place of depreciation, at prescribed rates and conditions. Book depreciation is added back in the computation; the allowance takes its place.
Two things follow. First, the rates and conditions are prescribed, so the client's accounting policy for depreciation has no bearing on the allowance. Second, the conditions matter as much as the rates. Before applying any rate, the firm should be satisfied that each asset qualifies and that nothing in the conditions blocks the claim.
VAT charged and duty paid come first
The NRS's information circular on the ascertainment of income tax of companies and the development levy sets a condition that catches many clients. Where VAT, import duty or a levy is due on qualifying capital expenditure, capital allowance is granted only to the extent that the VAT has been charged and the duty or levy paid. The circular's illustration is direct: a company that did not pay the VAT due on a motor vehicle cannot claim capital allowance on it.
PwC's Nigeria tax summary states the same condition more broadly: expenses are deductible, and capital allowances claimable on qualifying assets, only where VAT and any applicable import duty have been paid.
The NRS circular on company income tax and the development levy sets out these conditions alongside its worked illustrations on capital allowances and losses, and is the document to keep open while reviewing a client's schedule.
For the review, this means sampling additions and asking for evidence:
- Local purchases. A VAT invoice showing VAT charged on the asset.
- Imports. Customs documents showing import duty and any levy paid.
- Assets bought from unregistered suppliers. How the client dealt with any VAT that was due.
An asset without that evidence should be held out of the claim until it is found, and the client told why.
Proration for non-taxable income, and the 10% exception
Some clients earn income that is not taxable alongside their trading income. The NRS says capital allowance on qualifying expenditure used for both taxable and non-taxable income is prorated, so that only the taxable portion is deducted. It adds an exception: proration does not apply where non-taxable income is less than 10% of total income.
Worked in words: a company whose non-taxable income is a small fraction of its total, below that threshold, claims the full allowance on a shared asset. A company whose non-taxable income reaches the threshold or above must reduce the allowance on shared assets to the taxable share. The test turns on the income figures for the year, so it has to be recalculated each year rather than carried forward.
Thresholds and rates are stated as they appear in the NRS circular at the time of writing; confirm them before relying on them for a particular period.
Where the computation goes
The NRS says a company's annual return must include the self-assessment form, audited financial statements, the tax and capital allowance computations, evidence of payment of the tax due, the effective-tax-rate computation where applicable, and an attestation signed by a principal officer.
The capital allowance computation is therefore filed, not just kept. It should reconcile to the fixed-asset movements in the audited statements: additions, disposals and transfers should appear in both, and any difference should be explained. How the full computation comes together is covered in company income tax from 2026, and how it is presented in the statements in the tax note for company income tax and the levy.
What Achekam does and does not do here
Achekam does not calculate depreciation. In the firm's engagement, it presents the depreciation in the client's trial balance, flags when the charge does not agree with the movement in accumulated depreciation, and lets staff post a year-end adjusting entry. A wrong adjusting entry is reversed with a record of who reversed it and why, never deleted. That flag is a useful starting point for the tax review: a depreciation charge that does not reconcile is often a sign that the asset records behind it need attention too.
Lead schedules are built from the engagement's trial balance, with each figure traceable to its lines, so the fixed-asset lead schedule gives the reviewer the book cost and depreciation to reconcile against the allowance computation.
Where the client keeps its own books on Achekam, its fixed-asset register adds assets at cost and depreciates them monthly by straight line or reducing balance, but tax wear-and-tear is not worked out. The capital allowance computation is the firm's own working.
The return itself is prepared in the Revenue Service Centre, where staff open a Nigerian tax profile for the client and start returns that move through prepare, review and approve by different people.
A fixed-asset step on every tax file
Add one step to the Nigerian tax file for every company client:
- Reconcile the capital allowance schedule to the fixed-asset note in the audited statements.
- Sample additions and confirm VAT was charged and any duty or levy paid.
- Identify assets used for both taxable and non-taxable income.
- Calculate the non-taxable share of total income and decide whether proration applies.
- Confirm the rates used against the prescribed rates for the period.
- Record the conclusion, and any asset held out of the claim, with the reason.
Before the next company return is approved, pick the client with the largest additions this year and run the six steps above. Use what you find to brief the rest of the tax team.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
