How to Prepare for a Tax Audit Without the Stress

As a business owner, you must know that a tax audit is not something you can afford to ignore. In Nigeria, every registered business whether it’s a sole proprietorship, limited liability company, or partnership is legally required to file and remit taxes such as Company Income Tax (CIT), Value Added Tax (VAT), Withholding Tax (WHT), and Pay-As-You-Earn (PAYE). A tax audit in Nigeria is the Federal Inland Revenue Service (FIRS)’s official process for checking that you have complied with these obligations correctly.

While hearing that your company has been selected for a tax audit may cause initial panic, the reality is that it does not always mean you have done something wrong. FIRS conducts audits for many reasons: inconsistencies in your filings, claims for refunds, late submissions, or even routine industry reviews. The important thing is how prepared you are when the notice for a tax audit arrives.

Whether you’re running a retail store in Lagos, a logistics firm in Abuja, or a consulting business in Port Harcourt, being audit-ready helps you stay compliant, avoid penalties, and maintain your credibility with the tax authorities. With the right preparation and knowledge, you can handle any FIRS audit without the stress and penalties.

In this comprehensive guide, we’ll walk you through everything you need to know about handling a tax audit confidently. 

What is a Tax Audit?

A tax audit is an official review by the FIRS to ensure your business has accurately reported income, expenses, deductions, and tax payments. The process can vary depending on your business structure and recordkeeping.

A tax audit usually covers up to six fiscal years. Each audit is guided by a detailed audit plan and starts with a pre‑audit meeting at your premises

What Businesses Get Audited For

• Discrepancies between audited financial statements and tax returns
• Excessive VAT refund claims or under-remitted WHT
• High expenses-to-revenue ratios or large capital allowance claims
• Related‑party transactions and transfer pricing issues
• Sudden restructuring or large transactions without proper documentation
• Payroll discrepancies

Types of Tax Audits

• Correspondence Audit – Minor issues handled via mail
• Office Audit – You or your accountant visit a local IRS office
• Field Audit – An agent visits your business premises or accountant’s office

Practical Ways to Prepare for a Tax Audit in Nigeria

1. Acknowledge the Tax Audit Notification Immediately

• Contact the phone number or email listed on the letter.
• Acknowledge receipt and express readiness for engagement.
• If you’re not prepared, request an extension with valid reasons

2. Understand the Scope of the Audit

• Is it a desk review, a full field audit, or a tax investigation?
• Review the letter to know which years and taxes (CIT, VAT, WHT, PAYE) are under review.

3. Assign a Tax Liaison Officer in Your Company

• Appoint a reliable staff member (e.g., finance manager) or external consultant to handle audit correspondence.
• This helps avoid conflicting information or miscommunication with tax authorities.

4. Hire a Professional Tax Consultant

• Professionals understand FIRS procedures, audit formats, and rights under the law.
• They understand tax laws and can help interpret notices and prepare submissions
• They can represent you during the tax audit meetings. 
• They can object to erroneous assessments if needed

5. Gather All Filed Tax Returns

• Company Income Tax (CIT) – 6 years minimum
• Value Added Tax (VAT) – monthly filings and evidence of remittance
• Withholding Tax (WHT) – credit notes, remittance receipts
• PAYE – monthly schedules and proof of payment to State IRS
• Tax Clearance Certificates (TCC) – for every year under review

6. Compile Supporting Financial Documents

• Audited financial statements
• Trial balance, ledgers, bank statements
• Invoices (sales and purchases)
• Payment vouchers, receipts, deposit slips
• Loan agreements and capital expenditure records

7. Reconcile Your Financial Records with Filed Returns

• Ensure figures on audited statements, ledgers, and returns match.
• Resolve any discrepancies in income, expenses, or tax liability calculations.

8. Organise Payroll and Staff Tax Records

• PAYE schedules for all employees
• Pensions, NHF, NSITF, and ITF contributions
• Staff income records, bonuses, and deductions
• Employment contracts or payslips for the audited period

9. Separate Business from Personal Transactions

• Do not mix personal and business expenses in the same bank account.
• Review your accounts and isolate any personal charges from business funds.

10. Document VAT and WHT Transactions Properly

• Ensure your input and output VAT are supported with invoices and receipts
• Withholding tax deducted from vendors must be remitted with credit notes and receipts
• Keep WHT schedules and remittance evidence ready.

11. Conduct an Internal Pre-Audit

Use an internal checklist to:

• Confirm that all filings are present
• Verify amounts declared vs. actual bank inflows
• Identify any high-risk areas (e.g., huge expense claims, VAT refunds)

12. Prepare a Tax Audit File/Folder

Organize a hard copy and digital version with:

• A file index (e.g., Returns > Payroll > VAT > Contracts)
• Documents arranged by year
• Backup for every financial claim made

13. Conduct an Internal Tax Health Check

Don’t wait for the FIRS to find mistakes, run your own internal reviews:

• Review six years of filings and remittances
• Cross-check staff taxes, VAT returns, and expense deductions
• Correct any gaps or inconsistencies proactively

14. Cooperate Professionally During the Field Audit

• Make documents available on request
• Take meeting minutes and get them signed (FIRS requires this)
• Only present documents listed in the audit scope.