Self-Employment Tax — Calculation Methodology
Estimates annual income tax for self-employed individuals by deducting allowable business expenses and personal reliefs from gross income, then applying progressive tax bands.
Estimates annual income tax for self-employed individuals by deducting allowable business expenses and personal reliefs from gross income, then applying progressive tax bands.
Establish Gross Self-Employment Income
Section 30Total annual revenue from freelancing, consulting, or self-employment activities is established as the starting gross income figure.
Deduct Allowable Business Expenses
Section 27Legitimate business expenses are deducted from gross income. These include office rent, utilities, professional fees, equipment depreciation (capital allowances), and other expenses incurred wholly and exclusively for the purpose of the trade or profession.
Handle Excess Deductions
Section 27If business deductions exceed gross income, net income is zero and no tax is payable for the current period. Excess deductions may be carried forward to offset income in future tax periods.
Apply Personal Reliefs
Section 33Personal reliefs are deducted from net income. The same reliefs available to PAYE taxpayers apply: pension contribution (8%), NHF (2.5%), NHIS (5%), rent relief (20% of rent, capped at ₦500,000), life insurance, and voluntary pension contributions.
Apply Progressive Tax Bands
Section 34(1)Taxable income (net income minus reliefs) is allocated across the same six progressive bands used for PAYE: 0% on the first ₦800,000, then 15%, 18%, 21%, 23%, and 25% on successive bands.
Determine Payment Schedule
Section 41The total annual tax liability is computed. Quarterly instalment amounts and monthly equivalents are derived for payment planning purposes. Self-employed individuals are responsible for self-assessment and direct remittance to NRS.
This methodology is provided for informational and educational purposes only. Tax calculations are estimates based on the information provided and the rates published in the Nigeria Tax Act 2025. Individual circumstances may vary. Consult a qualified tax adviser for personalised guidance.