If you run payroll for a Nigerian company, January 1, 2026 changed your job in ways most HR managers are still catching up with.
Nigeria’s new Tax Act — signed into law on June 26, 2025 and effective from January 1, 2026 — introduced the most significant restructuring of personal income tax in Nigeria since 2011. The new income bands are different. The relief allowances have changed. The way you treat expatriate employees has changed. And the penalties for getting it wrong have increased by up to ten times compared to the old regime.
This guide explains every payroll-related change in plain English, with no legal jargon, so you can understand exactly what needs to change in your payroll process today.
Why This Matters More Than Most HR Memos Suggest
Many Nigerian companies received a circular or memo from their tax consultants when the new law was signed. Many more received nothing at all. But receiving a memo and actually updating your payroll calculations are two completely different things.
Here is the reality: if your payroll software or spreadsheet is still using the old PAYE bands and the old Consolidated Relief Allowance formula, every single payslip you have generated since January 2026 is wrong. Some employees are being over-deducted — meaning your company owes them money back. Others may be under-deducted — creating a liability that compounds every month.
The new Nigeria Tax Act (NTA) is not optional and there is no grace period. It took effect January 1, 2026. Every payroll run from that date forward must comply with the new framework.
The Single Biggest Change: The ₦800,000 Tax-Free Threshold
This is the change that affects the most employees and that most HR teams have not yet implemented correctly.
Under the new NTA, the first ₦800,000 of any employee’s annual income is completely tax-free. This means an employee earning ₦800,000 per year or less pays zero PAYE tax.
For context, ₦800,000 per year works out to approximately ₦66,667 per month.
Under the old system, employees began paying income tax much sooner because the relief structure was different. Under the NTA, the zero-rated threshold is explicit and straightforward — and it is higher than what most Nigerian employees were effectively enjoying under the old Consolidated Relief Allowance formula.
What this means for your payroll: Any employee earning below ₦800,000 annually should have exactly zero naira deducted as PAYE from their payslip. If your payroll is still deducting PAYE from employees in this income range, you are over-deducting and your company has a liability to those employees.
The New PAYE Income Tax Bands
The NTA introduces a completely new progressive income tax structure for individuals. Here are the new bands every payroll officer in Nigeria needs to know:
Annual income up to ₦800,000 — 0% (tax free) No PAYE deduction whatsoever.
Income above ₦800,000 — Progressive rates from 15% to 25% The specific bands above ₦800,000 are progressive, meaning higher income is taxed at higher rates, with the maximum rate capped at 25%.
This is a significant change from the old structure where the top rate was 24% and the band structure was completely different. Your payroll calculation must now use these new bands for every employee earning above ₦800,000 per year.
Practical example: An employee earning ₦2,400,000 per year (₦200,000 per month) previously had PAYE calculated using the old bands and the old Consolidated Relief Allowance. Under the NTA, the first ₦800,000 is tax-free and only the remaining ₦1,600,000 is subject to progressive tax at the new rates. This typically results in a lower net tax liability for middle-income employees — which means your company may have been over-deducting PAYE for these employees since January 2026.
The Consolidated Relief Allowance Is Gone
Under the old Personal Income Tax Act (PITA), Nigerian employees benefited from a Consolidated Relief Allowance (CRA) which was calculated as the higher of ₦200,000 or 1% of gross income, plus 20% of gross income. This was a complex formula that different payroll officers calculated differently, leading to widespread inconsistency across Nigerian companies.
The NTA completely eliminates the Consolidated Relief Allowance.
In its place, the NTA introduces a simpler and more transparent structure: the ₦800,000 tax-free threshold at the base, plus a new Rent Relief at the top.
The New Rent Relief — What HR Managers Need to Know
Replacing part of the old CRA, the NTA introduces a Rent Relief that allows employees to deduct from their taxable income:
20% of annual rent paid, up to a maximum of ₦500,000
This means an employee who pays rent of ₦2,500,000 per year can claim a rent relief of ₦500,000 (20% of ₦2,500,000 = ₦500,000, which equals the cap).
An employee who pays rent of ₦1,000,000 per year can claim ₦200,000 in rent relief (20% of ₦1,000,000).
How this affects your payroll process: To apply rent relief correctly, you need employees to declare their annual rent to HR. You then factor this into the PAYE calculation as a deduction from gross income before applying the tax bands. This requires a new data collection process — most Nigerian companies do not currently collect rent information from employees and have no mechanism for verifying or processing it for payroll purposes.
This is one of the most practical implementation challenges of the new law and one that many HR departments are not yet equipped to handle correctly.
Capital Gains Tax Now Merged With Income Tax
Under the old system, Capital Gains Tax was a flat 10% charged separately from income tax. Under the NTA, capital gains are now merged into the income tax framework and taxed at the applicable progressive income tax rate.
What this means for HR: If your company has share incentive schemes, employee share purchase plans, stock options, or any arrangement where employees receive or dispose of assets, the tax treatment of those benefits has changed. Gains that employees realise from company share schemes are no longer taxed at a flat 10% — they are now added to the employee’s taxable income and taxed at their marginal rate.
If your company operates any equity compensation for senior staff, your payroll and HR team needs to understand this change and factor it into your calculations.
New Rules for Expatriate Employees
The NTA introduces a clearer definition of tax residency that directly affects how you handle foreign national employees in Nigeria and Nigerian employees working abroad.
Tax-resident individuals are subject to Nigerian income tax on their worldwide income.
Non-tax-resident individuals are only taxed on Nigeria-source income.
The NTA provides clearer criteria for determining residency status, which affects how you structure the compensation packages of expatriate employees and how you calculate their PAYE obligations.
Additionally, the NTA includes provisions for employees in the creative arts and certain other sectors that may affect how you classify some of your staff for tax purposes. If your company employs any staff in these categories, you need specialist advice on how the exemptions apply.
Steeper Penalties for Non-Compliance — Your Personal Risk as HR Manager
This is the section most HR managers need to read twice.
Under the old tax regime, penalties for late or incorrect PAYE filings were relatively modest:
- ₦25,000 for the first month of non-compliance
- ₦5,000 for each subsequent month
Under the new Nigeria Tax Administration Act (NTAA) — one of the four acts signed on June 26, 2025 — penalties have increased dramatically:
- ₦100,000 for the first month of non-compliance
- ₦50,000 for each subsequent month of continued non-compliance
This is a four-to-ten times increase in penalties. A company that makes payroll errors for six months under the new regime could face penalties of ₦350,000 or more — just in administrative fines, before any interest or back-taxes.
More importantly, Nigerian tax law places personal liability on individuals responsible for payroll compliance in some circumstances. As an HR manager or payroll officer, incorrect PAYE deductions are not just a company problem — they can become your problem.
The 7 Payroll Updates Every HR Manager Must Make Right Now
Based on everything above, here is a practical checklist of exactly what needs to change in your payroll process:
Update 1 — Apply the new ₦800,000 zero-rate threshold Any employee earning below ₦800,000 annually must have PAYE set to zero. Check your payroll system or spreadsheet and confirm this is reflected correctly for every employee in this band.
Update 2 — Recalculate PAYE using the new income bands Remove the old Consolidated Relief Allowance formula entirely. Replace it with the new progressive band structure starting from ₦800,000. If you use payroll software, check with your vendor whether they have already released an NTA-compliant update — many have not.
Update 3 — Create a rent declaration process Design a simple form for employees to declare their annual rent paid. Collect this information and incorporate the rent relief calculation into your payroll. Start this process immediately — the longer you delay, the more backdated adjustments you will need to make.
Update 4 — Review equity compensation arrangements If any employees receive stock options, share awards, or other equity instruments, review the tax treatment with your tax advisor. The CGT merger into income tax changes the calculations significantly.
Update 5 — Review expatriate classifications Go through every foreign national employee and every Nigerian employee working abroad. Confirm their tax residency classification under the new NTA definition and adjust their payroll treatment accordingly.
Update 6 — Update your payroll records from January 2026 Calculate the difference between what you have deducted since January 2026 and what you should have deducted under the new NTA. Where you have over-deducted, you have a liability to refund affected employees. Where you have under-deducted, you need to catch up. The sooner you do this, the smaller the adjustment.
Update 7 — Brief your entire HR team Every person who touches payroll, benefits, or employee compensation in your organisation needs to understand these changes. A single payroll officer who has not been trained can create compliance issues that affect every employee in the company.
Why a Memo Is Not Enough — Your Team Needs Formal Training
Reading this article is a good start. But fully implementing the NTA changes in your payroll process requires more than understanding the rules in theory.
It requires knowing how to apply each rule to specific employee situations. It requires knowing what to do when an employee’s circumstances change mid-year. It requires understanding how rent relief interacts with other deductions. It requires knowing exactly what documentation you need to maintain to withstand a tax audit. And it requires being confident enough in your calculations that you can explain them to your employees, your management, and — if it comes to it — the Nigeria Revenue Service.
That level of competence does not come from a memo. It comes from structured, practical training delivered by people who understand both the law and the Nigerian business context it applies to.
TomFlims HR and Payroll Compliance Training — NTA 2026
TomFlims has been training HR professionals and payroll officers at Nigeria’s leading organisations for over a decade. Our clients include CBN, Nigeria LNG, Cadbury Nigeria, Zenith Bank, Access Bank, and Vita Foam — companies that trust TomFlims to keep their people compliant and competent.
We are fully accredited by the Industrial Training Fund (ITF), Centre for Management Development (CMD), AAPM, and IOSCM.
HR and Payroll Compliance Under the Nigeria Tax Act — Training Programme
This focused 1-day programme is designed specifically for HR managers, payroll officers, compensation and benefits specialists, and anyone in your organisation who touches employee tax calculations.
What the programme covers:
- The new ₦800,000 tax-free threshold — how to apply it correctly for every employee category
- The new progressive PAYE bands — step-by-step calculation workshop using real Nigerian payroll scenarios
- Rent relief — how to collect declarations, verify amounts, and apply the deduction accurately
- Capital Gains Tax merger — implications for share schemes and equity compensation
- Expatriate tax treatment under the new NTA residency rules
- New penalty framework — what HR managers and payroll officers are personally exposed to
- Practical payroll audit — how to identify and correct errors made since January 2026
- Documentation requirements — what records to maintain to be audit-ready
Who should attend: HR managers, payroll officers, compensation and benefits managers, HR directors, finance officers who handle payroll, and business owners who personally run payroll for their companies.
Training options: Available as in-house training at your office premises anywhere in Nigeria, or as open enrolment at our training centres in Surulere (Lagos), Lekki (Lagos), Magodo (Lagos), and Abuja.
How to Get This Training Funded Through the ITF
If your company has 25 or more employees, you are almost certainly paying the mandatory 1% ITF levy on your annual payroll. Most Nigerian companies pay this levy and never claim anything back.
As an ITF-accredited training provider, TomFlims training qualifies for the ITF employer reimbursement scheme — meaning your organisation can claim back up to 50% of the cost of this training after completion.
For a company spending ₦300,000 training its HR and payroll team with TomFlims, the net cost after ITF reimbursement could be as low as ₦150,000. Getting your payroll compliant with Nigeria’s most significant tax reform in fifteen years for ₦150,000 net is among the best investments any Nigerian company can make right now.
Contact TomFlims and we will provide you with the complete ITF reimbursement documentation checklist.
What Past TomFlims HR Participants Say
“I gained more experience than I expected. With seminars like this, the sky is our limit.” — Aiyeotan Olaitan Ayodele, Access Bank PLC
“This training has impacted a lot on my marketing strength. I advise that training like this should come up more regularly — kudos to the TomFlims crew.” — Adefolarin Eniola, Cadbury PLC
“This is a wonderful training that is beyond my expectation. It impacted more knowledge on me.” — Raheem Kazeem Adewale, Vita Foam Ltd
Frequently Asked Questions
Does the new Nigeria Tax Act affect every company’s payroll? Yes. Every company with employees in Nigeria is affected. The new PAYE bands, the elimination of the Consolidated Relief Allowance, and the new rent relief all apply from January 1, 2026 regardless of company size.
What is the new tax-free income threshold in Nigeria 2026? Under the NTA, the first ₦800,000 of any employee’s annual income is completely tax-free. Employees earning ₦800,000 or less per year pay zero PAYE.
What replaced the Consolidated Relief Allowance in Nigeria? The CRA has been eliminated under the NTA. It is replaced by a cleaner structure: a ₦800,000 zero-rate threshold at the base, and a Rent Relief of 20% of annual rent paid up to a maximum of ₦500,000 for employees who pay rent.
What is the penalty for incorrect PAYE in Nigeria 2026? Under the new NTAA, penalties for payroll non-compliance are ₦100,000 for the first month and ₦50,000 for each subsequent month — a significant increase from the old ₦25,000 and ₦5,000 respectively.
Can TomFlims train our HR team at our office? Yes. In-house payroll and HR compliance training is one of our most popular programmes. Our facilitators come to your premises anywhere in Nigeria and deliver the training customised to your company’s specific payroll structure and employee categories.
Is TomFlims training eligible for ITF reimbursement? Yes. TomFlims is fully accredited by the Industrial Training Fund. Your company can claim back up to 50% of qualifying training costs through the ITF reimbursement scheme. We provide the full documentation checklist to every client.
Act Before the Errors Compound Further
Every payroll cycle that passes with incorrect PAYE calculations creates a larger problem to fix later. Employees who have been over-deducted are owed money. Employees who have been under-deducted have a growing liability. The Nigeria Revenue Service expects your 2026 PAYE filings to reflect the new NTA framework — not the old PITA calculations.
The good news is that this is fixable. The bad news is that it becomes less fixable every month you wait.
TomFlims can have your HR and payroll team fully trained and confident in the new NTA framework within a single day. We can be at your office within the week.
Call us today: 014700398 or +2348032905352 WhatsApp: +2348032905352 Email: [email protected] Get an in-house training proposal: tomflims.com/contact
Training locations: Surulere Lagos · Lekki Lagos · Magodo Lagos · Abuja
