COMMON TAX CHALLENGES FOR FREELANCERS AND HOW TO OVERCOME THEM

PROAID CONSULT August 09, 2025 0

Freelancing in Nigeria’s vibrant gig economy offers flexibility and opportunity, with over 2 million freelancers contributing to a sector projected to grow by 15% annually through 2027. However, navigating tax obligations remains a significant hurdle for many. Unlike salaried employees, freelancers face unique tax challenges due to irregular incomes, complex regulations, and limited access to structured financial guidance. In 2025, with Nigeria’s Federal Inland Revenue Service (FIRS) intensifying compliance efforts, understanding and overcoming these challenges is critical to avoiding penalties and maximizing earnings. 

This article, crafted for Nigerian freelancers, explores common tax pitfalls and provides actionable solutions to ensure compliance and financial stability, drawing on current trends and insights from platforms like X.

UNDERSTANDING TAX OBLIGATIONS AS A FREELANCER

Freelancers in Nigeria are classified as self-employed, meaning they’re responsible for calculating, reporting, and paying taxes independently. Key taxes include Personal Income Tax (PIT) under the Personal Income Tax Act, Value Added Tax (VAT) for services exceeding ₦25 million annually, and, in some cases, Company Income Tax (CIT) if operating as a registered business. Recent FIRS data shows 60% of freelancers under-report income due to misunderstanding obligations, risking fines up to ₦50,000. The 2025 budget emphasizes digital tax collection, making compliance non-negotiable. Staying informed and proactive is the first step to overcoming these challenges.

CHALLENGE 1: IRREGULAR INCOME AND TAX ESTIMATION

Freelancers often face fluctuating incomes, complicating tax planning. Unlike salaried workers with predictable pay, freelancers may earn heavily one month and little the next, making it hard to estimate tax liabilities.

SOLUTION: Implement a budgeting system to track income monthly. Set aside 20-30% of each payment for taxes, using a separate savings account. Use the FIRS tax table for PAYE (Pay As You Earn) to estimate annual PIT based on projected earnings—rates range from 7% to 24% depending on income. Tools like QuickBooks or Wave can forecast cash flow, helping you plan. X users recommend quarterly reviews to adjust for income spikes, reducing year-end surprises.

CHALLENGE 2: LACK OF TAX KNOWLEDGE

Many freelancers lack awareness of applicable taxes or deductions, leading to overpayment or non-compliance. For instance, only 25% of Nigerian freelancers claim allowable expenses like internet or equipment costs, missing significant savings.

SOLUTION: Educate yourself through FIRS resources or online courses on platforms like Udemy. Register for a Tax Identification Number (TIN) via the FIRS e-portal to access tax services. Allowable deductions include business expenses like software subscriptions, office rent, and travel—keep receipts for proof. Engage a tax consultant, like those at ProAid Consult, for tailored advice, especially if handling international clients, as foreign income may require double taxation agreements.

CHALLENGE 3: MANAGING VAT COMPLIANCE

Freelancers earning above ₦25 million annually must register for VAT, charging 7.5% on services and remitting to FIRS monthly. Many fail to comply, unaware of thresholds or procedures, facing penalties up to ₦150,000.

SOLUTION: Monitor your income to know when you hit the VAT threshold. Register with FIRS for VAT obligations and use invoicing tools like Zoho Invoice to automate VAT calculations. File returns by the 21st of each month via the FIRS e-filing portal. For smaller freelancers, track income to stay below the threshold legally, or consult experts to assess if voluntary registration benefits your business. Recent X discussions highlight that early VAT registration can enhance credibility with corporate clients.

CHALLENGE 4: RECORD-KEEPING AND DOCUMENTATION

Poor record-keeping is a top issue, with 70% of freelancers audited by FIRS citing incomplete records as a problem. Missing invoices or expense logs can lead to disallowed deductions or inflated tax bills.

SOLUTION: Maintain meticulous records using digital tools like Excel or accounting apps such as FreshBooks. Log all income, expenses, and contracts, categorizing them for tax purposes. Store digital copies of receipts on cloud platforms like Google Drive. Schedule weekly updates to avoid backlog. For international payments (e.g., via PayPal or Payoneer), retain bank statements showing conversions to naira, as FIRS requires local currency reporting.

CHALLENGE 5: DEALING WITH AUDITS AND PENALTIES

FIRS audits are increasing, with freelancers often unprepared for scrutiny. Non-filing or under-reporting can trigger penalties, interest, or legal action, with 2024 audits catching 15% of freelancers off-guard.

SOLUTION: File annual PIT returns by March 31 via the FIRS portal, even if income is low. Respond to audit requests promptly, providing organized records. If penalties arise, negotiate payment plans with FIRS—recent reforms allow installment options for SMEs. ProAid Consult can assist in audit preparation, ensuring compliance and minimizing stress. X users advise keeping a tax calendar to track deadlines, reducing audit risks.

CHALLENGE 6: INTERNATIONAL CLIENTS AND CURRENCY ISSUES

Freelancers working with global clients face complexities like foreign exchange gains/losses and withholding taxes. Nigeria’s volatile naira (₦1,600 to $1 in 2025) complicates income reporting.

SOLUTION: Report foreign income in naira using the Central Bank of Nigeria’s exchange rate on payment date. Understand withholding tax obligations—some countries deduct taxes, requiring you to claim credits via Nigeria’s tax treaties. Use platforms like Wise for transparent conversions and retain transaction records. Consult a tax expert to navigate double taxation agreements, ensuring you don’t overpay.

CONCLUSION: EMPOWERING FREELANCERS FOR TAX SUCCESS

Tax challenges shouldn’t deter Nigerian freelancers from thriving in the gig economy. By addressing irregular income, improving tax knowledge, ensuring VAT compliance, maintaining records, preparing for audits, and handling international payments, freelancers can stay compliant and financially secure. In 2025, with digital tools and FIRS’s e-filing simplifying processes, proactive tax management is more accessible than ever. Start by registering for a TIN, tracking income diligently, and seeking professional guidance from ProAid Consult at www.proaidconsult.org. With these strategies, freelancers can focus on their craft while turning tax challenges into opportunities for growth.