Tax practice management: engagement, communication with authorities, risks and technology

A company in Surulere appoints a firm to handle its tax. The firm accepts, introduces itself to the Nigeria Revenue Service (NRS) and the Lagos State Internal Revenue Service, files returns, answers a query on hotel expenses and, one year later, raises an objection to a best of judgment assessment.

Every step is a letter, a deadline or a record, and each one is a place where a tax practice can lose a client or a claim for professional negligence. Running a tax practice is as much about process and risk as it is about technical tax.

This topic covers the services of a tax practice, client and engagement acceptance, communication with clients, tax authorities and other parties, the records that client and consultant must keep, the benefits and risks of running a tax practice, how to reduce those risks, objections by electronic and physical means, and the role and challenges of technology. The previous topic covered mergers and acquisitions. The next covers tax planning, avoidance and evasion.

Key terms in plain English

Syllabus check

This topic is in syllabus area E (tax management, 10% of marks). It covers:

• client and engagement acceptance and the documents involved;
• the risks and benefits of a tax practice and how to mitigate the risks;
• the use of technology in tax practice and its challenges.

CAMA 2020 and tax practice

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Services and professional duty

A tax practice offers compliance (timely filing and payment), planning (structuring affairs so that tax is as low as the law allows) and advocacy (representing a client in a dispute). The Institute of Chartered Accountants of Nigeria (ICAN) Code of Ethics forbids a chartered accountant in public practice from any business or activity that impairs, or might impair, integrity, objectivity or the good reputation of the profession.

The fundamental principles are integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Engagement steps

1. Appointment letter from the client, naming the services (for example tax matters of the company, directors and staff), the contact person and a first meeting.
2. Professional clearance. The incoming consultant contacts the former consultant or auditor to learn whether there is any professional reason not to accept, to obtain accounts, computations and background, and to plan the work.
3. Acceptance and engagement letter from the consultant, stating the scope, deliverables, fees and payment terms. Fees are discussed at the start. Acceptance is in writing.
4. Letter of introduction from the client to the tax authority, with the consultant copied: the Nigeria Revenue Service for federal taxes, and each State Internal Revenue Service and the FCT Internal Revenue Service where the company has branches or staff.

Communication with the tax authority

Under the NTAA 2025 the authority may demand information from taxpayers and third parties such as banks, insurers, landlords, customers and the Corporate Affairs Commission (CAC). Communication covers:

• Registration. A letter and the authority’s questionnaire, with certified true copies of the incorporation documents (originals for sighting): name, registration number and date; registered and business addresses; directors and shareholders and their shareholdings; other directorships; the nature of the business; any predecessor; the commencement date; the year end; the company secretary; auditors, tax consultants and bankers. The company receives a tax identification number.
• Returns. A company files within six months of its accounting year end. A new company files within 18 months of incorporation or six months after its first accounting year end, whichever is earlier. The usual package is signed audited accounts with a covering letter, the capital allowances and tax computation, the self-assessment forms and evidence of payment. Tax is due on the filing date, or by approved instalments, of up to three, ending no later than the due date, with the first payment shown with the return. An individual files the self-assessment form (Form A) at the start of each year of assessment, signed and dated.
• Assessments. If a taxpayer does not file and pay in time, the authority may raise a best of judgment assessment. A valid objection must reach it within 30 days of service, with valid grounds.
• Queries and replies. See below.

Registration, filing and payment are now done on the electronic platforms of the NRS and the state services. An objection letter may be served by courier or by electronic means under the NTAA 2025, and the Finance Acts of 2019 and 2020 already allowed electronic correspondence.

Queries and replies

Queries come from desk review of returns. Officers want support that income is not understated, reliefs are not overstated and expenses were wholly and exclusively incurred for the business. Typical points:

• documents for assets, liabilities, income and expenditure in the taxpayer’s name
• private expenses in the accounts
• VAT and supplier invoices
• PAYE and withholding tax deducted and remitted
• capital items written back to profit
• loss and carry-forward rules

When replying, be professional and ethical, quote law or decided cases only where the facts are alike, use the client’s documents and the working papers, and do not attach irrelevant third-party documents. The consultant must never be involved in practices that look like evasion or fraud.

Other stakeholders

With the client’s written permission, the consultant may obtain bank statements from bankers, premium details from insurers, pension certificates from pension fund administrators and advice from lawyers, and must take reasonable care in using third-party evidence.

Records

Benefits of running a practice

• Own schedule and rules, and a better balance of work and life.
• Financial benefits: the owner decides what to keep in the firm and what to pay out.
• Choice of team, so that the culture fits.
• Choice of clients, including those who match a technology-driven firm.
• Own vision for the firm.

Risks of running a practice

• Lack of expertise, such as wrong advice on restructuring.
• Lack of attention to detail, such as late filing, which brings heavy penalties for clients.
• Lack of documentation, such as no record of engagement terms or filing positions.
• Unpredictable income for the owners, who are paid last.
• Tax is one of the largest sources of professional liability claims for small and mid-sized firms.

Mitigation

• Take only work within your competence, or outsource it to qualified specialists.
• Keep up with tax law and train staff and clients.
• Use quality control systems, checklists and a task and deadline tracker.
• Check a new client’s filing history, past problems and past advisers before accepting.
• Record all material advice in writing, including a note of any verbal advice.
• Obtain professional valuations for significant related party transactions and reorganisations.
• Keep good records and compliance procedures; use technology to cut errors.
• Keep a professional network, follow developments and take professional indemnity insurance.

Technology in tax practice

Benefits to taxpayers: lower cost of doing business and of compliance; savings of time and money; efficiency; and the ability to comply without physical contact, for example in a pandemic.

Challenges of digital tax solutions

• Poor connectivity, limited devices and power cuts.
• Cyber security fears and the risk of attack.
• Gaps in digital skills.
• Complex tax laws.
• Cost, which hits small businesses.
• Poor data quality and accuracy.
• Difficulty in integrating with existing systems.
• Poor user experience and accessibility.
• Keeping solutions in line with the law as it changes.
• Scaling the system as taxpayer numbers and rules change.

Worked examples

1. First return: 18 months from incorporation is 1 September 2027; six months after the first year end is 30 June 2027. The earlier date, 30 June 2027, applies.
2. Second return: six months after 31 December 2027, which is 30 June 2028.
3. If tax is paid by instalments, up to three, the last must be paid by the due date.

1. The penalty for failing to file is ₦100,000 for the first month and ₦50,000 for each later month.
2. Three months.
   100,000 + 50,000 + 50,000 = ₦200,000.
3. A task and deadline tracker would have prevented it.

1. The deadline for objection is 30 days from service, so it falls on 29 August.
2. The letter gives valid grounds: a good compliance record, the reason for delay with medical evidence, and the date of filing and payment, with copies.
3. It asks that the BOJ assessment be set aside and replaced by the self-assessment.

1. Rent: agreement, landlord’s receipt, evidence of deduction and payment of withholding tax, vouchers.
2. Directors’ fees: payment vouchers, evidence of withholding tax deducted and remitted.
3. Salaries: payroll, appointment letters and evidence of PAYE remittance.

How to score full marks

• Put the engagement steps in order: appointment, clearance, acceptance, introduction.
• Quote the dates: six months, 18 months, 30 days.
• Use the format of a letter when asked: reference, date, addressee, subject, body, sign-off and copy line.
• Pair every risk with a control.
• Tie technology to a benefit and a challenge.

Common mistakes in the exam

• Skipping professional clearance with the former consultant.
• Forgetting the engagement letter and fees.
• Giving the objection period as 60 days.
• Quoting the old education tax or the old late return penalty of ₦25,000.
• Listing risks with no mitigation.

Quick revision

• Services: compliance, planning, advocacy.
• Appointment, clearance, acceptance and engagement letter, introduction to authority.
• Return: six months after year end; new company 18 months or six months, whichever is earlier.
• Objection: 30 days, courier or electronic.
• Risks: expertise, detail, documentation; controls: checklists, tracking, training, insurance.
• CAMA 2020: ss. 119, 305, 308, 377(1), 378.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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