Made a Loss or Bought Equipment for Your Business? Here’s How It Could Affect Your Tax

These situations can affect how your taxable income is calculated. Under Nigeria’s Tax Act 2025, businesses and eligible individuals can claim certain deductions for losses and capital allowances on qualifying assets, provided they meet the relevant conditions.

Understanding these rules can help you plan ahead, keep the right records and avoid overlooking deductions you may be entitled to claim.

How does loss relief work?

A business loss occurs when its allowable expenses exceed its income for the relevant period. If your business records a tax loss, the rules may allow that loss to be deducted from eligible profits in a later period.

For example, imagine your business records a tax loss of ₦2 million in one year. In the following year, it makes an assessable profit of ₦5 million. If the full loss qualifies for relief and remains available, deducting it could leave ₦3 million before other applicable deductions and adjustments.

The actual calculation depends on the applicable tax rules and the nature of the business. Under section 27 of the Nigeria Tax Act 2025, a company’s loss deduction is restricted to the business in which the loss arose. The loss is deducted from the first subsequent year’s assessable profits to the extent possible, with any remaining amount carried forward until fully used. Losses from digital asset transactions are subject to a separate restriction and can only be deducted against profits from the relevant digital or virtual asset business.

Individuals earning income from a trade, business, profession or vocation are covered by the loss provisions in section 28, which also set conditions for using losses against eligible income.

A recorded loss does not automatically entitle you to a tax refund. The rules determine how the loss can be used to reduce taxable profits or income.

What are capital allowances?

When a business buys an asset for long term use, the cost is generally treated differently from an ordinary running expense. This is where capital allowances come in.

Capital allowances provide tax deductions for qualifying capital expenditure incurred for business purposes. Depending on the asset and the applicable conditions, qualifying expenditure may include machinery, business equipment, furniture, vehicles, software and certain buildings.

For example, a design business might purchase computers and eligible software to serve its clients. Rather than automatically deducting the entire purchase cost as an ordinary business expense, it may be able to claim capital allowances under the rates and rules that apply to those assets.

The Nigeria Tax Act 2025 sets out capital allowance categories and rates in the First Schedule. The listed rates include 10% for specified categories such as building expenditure, 20% for categories including plant, furniture and other equipment, and 25% for motor vehicles, software and other capital expenditure. The correct classification matters, so these rates should not be applied indiscriminately to every asset.

The asset must meet the qualifying conditions. For companies, section 27 also restricts qualifying capital expenditure where applicable VAT has not been charged on an asset when due, or relevant import duty or levy has not been paid on imported items. Where an asset is used partly to generate taxable income, the allowance may also need to be apportioned.

What records should your business keep?

To support a loss relief claim, maintain accurate accounts showing your income, allowable expenses and how the loss was calculated. Keep invoices, receipts, bank statements, sales records and previous tax computations so you can explain the figures if requested.

For capital allowances, retain purchase invoices, proof of payment, asset descriptions, dates of acquisition and records showing how each asset is used in the business. Import documents and evidence of applicable duties or taxes may also be relevant. An asset register can help you track purchases and the allowances claimed over time.

These records are useful when preparing tax computations and checking whether deductions have been correctly applied. They also make it easier to distinguish day to day business expenses from purchases that may qualify for capital allowances.

Keep your business records ready with LessaTax

Losses and asset purchases can have tax implications beyond the year in which they occur. Without organised records, it may be difficult to calculate the correct figures, support a claim or identify information missing from your accounts.

LessaTax helps you organise your financial records, track income and work related expenses, and maintain the information you need to understand your tax position. Keeping your records up to date gives you a clearer picture of your business finances and helps you prepare for tax obligations.

Request early access to LessaTax: https://lessatax.ng/request-access