What Is Input VAT and Output VAT and How to Remit Correctly in Nigeria

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What Is Input VAT and Output VAT and How to Remit Correctly in Nigeria

Introduction

If you are VAT registered in Nigeria, or approaching the point where you will need to be, there are two numbers that will define your relationship with the Nigeria Revenue Service every single month.

Those two numbers are your output VAT and your input VAT.

Every VAT-registered Nigerian business collects VAT from customers on every sale. That is output VAT. Every VAT-registered Nigerian business also pays VAT to suppliers on certain purchases. That is input VAT. The difference between the two is what you actually remit to NRS by the 21st of each month.

Getting these two figures right, understanding what qualifies as input VAT, knowing how to document everything correctly, and submitting on time is the entire VAT compliance process for a Nigerian business.

Most of the confusion around VAT in Nigeria does not come from the rate or the threshold. It comes from misunderstanding what input VAT is, what qualifies for it, and how the remittance calculation actually works.

This article covers all of it, step by step, with real Nigerian examples throughout.

A Quick Recap: Who This Article Is For

This article is written for Nigerian business owners who are VAT registered, meaning their annual turnover exceeds ₦25 million, or who are approaching that threshold and preparing to register.

If your annual turnover is below ₦25 million, you are VAT exempt and do not need to charge or remit VAT. However, understanding input and output VAT now will prepare you for when your business crosses that threshold.

For a full explanation of VAT basics including who must register and how to calculate VAT on individual transactions, refer to the earlier article in this series.

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What Is Output VAT?

Output VAT is the VAT you charge your customers on the goods or services you sell. It is called output VAT because it arises from the output of your business, meaning your sales.

Every time a VAT-registered business makes a sale, 7.5% of that sale value is output VAT. This money belongs to NRS. You collected it from your customer and you are holding it temporarily before remitting it.

Formula: Output VAT = Total VAT-able Sales Revenue multiplied by 7.5%

Or, if your prices are VAT inclusive: Output VAT = Total VAT-inclusive Revenue multiplied by (7.5 divided by 107.5)

Example: Adaeze's January sales total ₦242,950 including VAT.

Output VAT = ₦242,950 multiplied by (7.5 divided by 107.5) Output VAT = ₦242,950 multiplied by 0.06977 Output VAT = ₦16,950

This ₦16,950 is not Adaeze's money. It belongs to NRS. Her actual January revenue is ₦242,950 minus ₦16,950 = ₦226,000.

What generates output VAT:

• Sales of physical products through your store, POS, or online platform
• Sales of services to Nigerian customers
• Delivery fees charged to VAT-able customers (where applicable)
• Any other taxable supply made in the course of your business

What does not generate output VAT:

• VAT-exempt supplies such as basic food items, medical products, books, and exported goods
• Supplies made before your VAT registration date
• Returns and refunds given to customers (these reduce your output VAT)

What Is Input VAT?

Input VAT is the VAT you pay to your suppliers when you purchase goods or services for your business. It is called input VAT because it arises from the inputs to your business, meaning your purchases.

When a VAT-registered supplier sells to you and includes VAT on their invoice, you have paid input VAT. You are entitled to deduct this from your output VAT before remitting to NRS, because VAT has already been paid at an earlier stage in the supply chain.

This deduction mechanism is why VAT is called a Value Added Tax. You only remit tax on the value your business adds, not on the entire sale price.

Example: Adaeze buys stock from her dress supplier. The invoice reads:

Amount

Dresses (10 units at ₦7,000)

₦70,000

VAT at 7.5%

₦5,250

Total payable

₦75,250

Adaeze's input VAT from this purchase is ₦5,250. She paid this VAT to her supplier, who will remit it to NRS on their own return. Adaeze can deduct it from her own output VAT.

What Qualifies for Input VAT Deduction?

This is where many Nigerian merchants make costly mistakes. Not every purchase qualifies for input VAT deduction. There are specific conditions that must all be met.

Condition 1: Your supplier must be VAT registered. If your supplier is not VAT registered, they should not be charging you VAT and you have no valid input VAT to claim. Buying from unregistered suppliers means you pay the full price without any input VAT credit.

Condition 2: You must have a proper VAT invoice. A valid VAT invoice from your supplier must include:

• Supplier's full business name and address
• Supplier's TIN
• Supplier's VAT registration number
• Invoice date and unique invoice number
• Description of goods or services supplied
• The net amount before VAT
• The VAT amount separately stated
• The total amount including VAT

Informal receipts, handwritten market slips, WhatsApp payment confirmations, and invoices without a TIN and VAT number do not qualify. If you cannot produce a valid VAT invoice, you cannot claim the input VAT.

Condition 3: The purchase must be for business purposes. Input VAT can only be claimed on purchases made for the purpose of your business. Personal purchases made through the business account do not qualify. Mixed-use purchases must be apportioned.

Condition 4: The goods or services must be VAT-able. Input VAT on purchases of VAT-exempt goods does not qualify for deduction. For example, if you buy basic food items that are VAT exempt, there is no input VAT to claim even if your supplier incorrectly charged VAT.

Condition 5: You must retain the original invoice. NRS can request your VAT records at any time during an audit. You must keep all VAT invoices from suppliers for a minimum of six years. Digital copies are acceptable provided they are complete and legible.

How to Calculate Net VAT Payable: Step-by-Step

Step 1: Total your output VAT for the month. Add up the VAT portion of every VAT-able sale made during the month. If you use Zerrar, this figure is automatically calculated and displayed in your VAT report at the end of each month.

Step 2: Total your input VAT for the month. Go through every supplier invoice for the month. For each invoice that meets all the qualifying conditions above, record the VAT amount. Add all qualifying input VAT amounts together.

Step 3: Calculate net VAT payable. Net VAT Payable = Output VAT minus Input VAT

Step 4: If the result is positive, this is what you remit to NRS. A positive net VAT means you collected more VAT from customers than you paid to suppliers. You remit the difference.

Step 5: If the result is negative, you have a VAT credit. A negative net VAT means you paid more VAT to suppliers than you collected from customers. This excess is a VAT credit that can be carried forward to offset next month's output VAT, or you can apply to NRS for a refund.

Full Worked Example: Adaeze's Monthly VAT Calculation

January Output VAT:

Adaeze's total January sales including VAT = ₦242,950

Product

VAT Inclusive Revenue

VAT Portion

Dresses

₦161,250

₦11,250

Bags

₦43,000

₦3,000

Shoes

₦38,700

₦2,700

Total

₦242,950

₦16,950

Total Output VAT for January = ₦16,950

January Input VAT:

Supplier Purchase

Net Amount

VAT Paid

Qualifies?

Dress supplier (VAT registered, proper invoice)

₦70,000

₦5,250

Yes

Bag supplier (VAT registered, proper invoice)

₦20,000

₦1,500

Yes

Shoe supplier (VAT registered, proper invoice)

₦18,000

₦1,350

Yes

Market trader (not VAT registered, no TIN on receipt)

₦15,000

₦0

No

Total qualifying input VAT

₦8,100

Total Input VAT for January = ₦8,100

Net VAT Payable: ₦16,950 minus ₦8,100 = ₦8,850

Adaeze remits ₦8,850 to NRS by the 21st of February.

How to Remit VAT to NRS: Step-by-Step Guide

Requirements before you start:

• Your TIN and TaxPro Max login credentials
• Your total output VAT figure for the month
• Your total qualifying input VAT figure for the month
• All supporting VAT invoices from suppliers
• Access to Remita for payment

Step 1: Log into TaxPro Max. Go to taxpromax.firs.gov.ng and log in with your TIN and password.

Step 2: Navigate to VAT returns. From your dashboard, select the VAT filing section and choose the relevant filing period.

Step 3: Enter your output VAT. Input the total VAT collected from customers during the month. This is your output VAT figure.

Step 4: Enter your input VAT. Input the total qualifying VAT paid to VAT-registered suppliers during the month. This is your input VAT figure.

Step 5: Review the net VAT payable. TaxPro Max calculates your net VAT payable automatically from the figures you entered.

Step 6: Submit your VAT return. Confirm and submit your return. Even if your net VAT payable is zero, you must complete this step. A nil return must still be filed.

Step 7: Generate your Remita payment reference. After submitting, generate a payment reference through the Remita integration on TaxPro Max.

Step 8: Make your payment. Pay through your bank, mobile banking, or USSD using your Remita reference. Ensure payment is completed before the 21st of the month.

Step 9: Download and save your confirmation. Download your VAT return receipt and Remita payment confirmation. Store these securely. You will need them if NRS ever audits your VAT records.

VAT Credits: What to Do When Input VAT Exceeds Output VAT

In some months, particularly months where you make large stock purchases but have lower sales, your input VAT may exceed your output VAT. This creates a VAT credit rather than a liability.

Example: Chiamaka buys a large Christmas stock order in October.

• October Output VAT: ₦12,000
• October Input VAT: ₦22,000
• Net VAT: negative ₦10,000

Chiamaka has a ₦10,000 VAT credit for October.

She has two options:

Option 1: Carry it forward. The ₦10,000 credit is applied against her November output VAT. If her November net VAT payable is ₦18,000, she only remits ₦18,000 minus ₦10,000 = ₦8,000 for November.

Option 2: Apply for a refund. Chiamaka can apply to NRS for a refund of the ₦10,000 VAT credit. NRS refund processing can take considerable time in practice. Most Nigerian businesses opt to carry credits forward rather than wait for a refund.

Zerrar tracks your cumulative VAT position month by month, so any carried-forward credit is automatically factored into the following month's calculation.

VAT on Returned Goods and Refunds

When a customer returns a product and you issue a refund, the VAT collected on that original sale must be adjusted.

How to handle VAT on returns:

Issue a credit note to the customer that clearly states:

• The original invoice number and date
• The reason for the return
• The net value being credited
• The VAT amount being reversed
• The total credit

The VAT amount on the credit note reduces your output VAT for the month in which the return is processed.

Example: A customer returns a bag originally sold for ₦8,600 VAT inclusive in January. Adaeze processes the refund in February.

VAT on the returned bag = ₦8,600 multiplied by (7.5 divided by 107.5) = ₦600

Adaeze reduces her February output VAT by ₦600 when calculating her February net VAT payable.

Common Mistakes to Avoid

Claiming input VAT on purchases from unregistered suppliers If your supplier is not VAT registered, any VAT they charge you is not legitimate and you cannot claim it as input VAT. Only purchase from VAT-registered suppliers when input VAT recovery matters to you.

Accepting invoices without a TIN or VAT registration number An invoice without a TIN and VAT registration number is not a valid VAT invoice. You cannot claim input VAT from it regardless of what the document says. Train your team to always request proper VAT invoices from suppliers.

Including VAT collected in your revenue figures Output VAT collected from customers is not your income. It belongs to NRS. Including it in your revenue inflates your apparent turnover and leads to misstated financial reports.

Filing late or not filing a nil return Missing the 21st deadline attracts interest and penalties. Filing nothing, even when you owe zero, attracts a ₦50,000 penalty. Set a monthly reminder and treat VAT filing as a non-negotiable monthly task.

Not reconciling your VAT account monthly Some Nigerian merchants file their VAT return without reconciling their output VAT against their actual sales records and their input VAT against their supplier invoices. Discrepancies discovered during an NRS audit are far more costly to resolve than errors caught and corrected during self-reconciliation.

Losing supplier VAT invoices You must keep all VAT invoices for six years. Losing them means you cannot substantiate your input VAT claims during an audit, potentially resulting in those claims being disallowed and additional tax being assessed.

How Zerrar Simplifies Input and Output VAT Tracking

Zerrar is built to take the manual calculation out of your monthly VAT process entirely.

Output VAT tracking: Every sale recorded through Zerrar automatically separates the VAT portion from your net revenue. Your cumulative output VAT is updated in real time with every transaction across all channels, whether POS, online store, or WhatsApp.

Monthly VAT ledger: Zerrar maintains a live VAT ledger showing your month-to-date output VAT, giving you a clear view of what you are accumulating towards your NRS remittance obligation.

VAT report generation: At the end of each month, Zerrar generates a VAT report showing your total output VAT for the period. This is the exact figure you enter into TaxPro Max for your output VAT line.

VAT-compliant receipts: Every receipt generated by Zerrar on the Pro and Growth plans displays the net price, VAT amount, and total separately, meeting all NRS documentation requirements and giving your customers a valid VAT receipt.

VAT due date reminders: Zerrar reminds you of the approaching 21st deadline so you never miss a filing or payment.

Annual turnover monitoring: Zerrar tracks your cumulative annual turnover and alerts you as you approach the ₦25 million VAT registration threshold, giving you time to prepare.

For input VAT, you record your supplier invoices and the VAT paid through Zerrar's expense tracker. Combined with your output VAT report, this gives you both figures needed for your monthly net VAT calculation without manual spreadsheet work.

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Frequently Asked Questions

Can I claim input VAT on goods I purchased before I registered for VAT? Generally no. Input VAT can only be claimed on purchases made after your VAT registration date. Some provisions exist for pre-registration input VAT on goods still in stock at the time of registration, but this requires specific documentation and should be handled by a qualified tax adviser.

What if my supplier refuses to give me a VAT invoice? If your supplier is VAT registered and charges you VAT, they are legally obligated to issue a proper VAT invoice. If they refuse, you can report this to NRS. In practice, it is simpler to either insist on proper documentation before paying or source from a supplier who provides compliant invoices.

Do I charge VAT on services as well as products? Yes. VAT applies to both goods and services in Nigeria, with some exemptions. If you provide services as part of your business and your turnover exceeds ₦25 million, you must charge VAT on those services.

Can I claim input VAT on my Zerrar subscription? If Zerrar is a VAT-registered business and issues you a VAT-compliant invoice for your subscription, the VAT portion qualifies as input VAT. Check your Zerrar invoices for the TIN and VAT registration details.

What if I charged VAT to customers but forgot to remit it? You still owe the full amount to NRS plus any applicable interest and penalties. The fact that you collected it obligates you to remit it. Contact NRS or a tax adviser immediately to arrange payment before the debt accumulates further.

How do I handle VAT when I sell to both VAT-exempt and VAT-able customers? You must track VAT-able and VAT-exempt sales separately. Only VAT-able sales generate output VAT. If you sell a mix of VAT-able and VAT-exempt goods, your input VAT deduction may need to be apportioned accordingly.

Is the Remita payment the same as filing the return? No. Filing your return on TaxPro Max and making the payment through Remita are two separate steps. You must do both. Filing without paying leaves an outstanding tax liability. Paying without filing leaves an unfiled return, which can also attract penalties.

Conclusion

Input VAT and output VAT are not complicated once you understand the underlying logic. You collect VAT from customers on your sales. You pay VAT to suppliers on qualifying purchases. The difference is what you remit to NRS every month by the 21st.

The discipline is in the documentation. Proper VAT invoices from suppliers, clean sales records from your POS and storefront, and a monthly reconciliation habit are all you need to make VAT compliance a routine part of running your business rather than a source of stress.

Zerrar handles the output VAT tracking automatically with every sale. Your expense records in Zerrar capture the input VAT from supplier invoices. Your monthly VAT report gives you both figures, ready to enter into TaxPro Max and settle before the deadline.

Call to Action

Make VAT compliance a five-minute monthly task instead of a monthly headache.

Sign up for Zerrar today at zerrar.com, free with no credit card required, and let the platform track your output VAT automatically with every sale you record.

Already on Zerrar and VAT registered? Enable VAT in your tax settings right now, enter your TIN and VAT registration number, and every transaction from this point forward will be automatically tracked and reported for your monthly NRS remittance.