Still on the subject matter of payroll fundamentals in Nigeria. We all are aware that Nigeria’s payroll landscape has changed effective from 1st January 2026. We previously built a free web-based PAYE calculator for Nigerians based on the new Nigeria Tax Act 2025 by flexing some of our programming skills as accountants. This is equivalent to that but using just excel that you can download and make yours for the excel lovers out there.
Payroll Fundamentals in Nigeria (Updated for the Nigeria Tax Act 2025)
With the introduction of the Nigeria Tax Act 2025, PAYE computation is no longer driven by the old Consolidated Relief Allowance (CRA) model. Instead, taxable income is now determined through direct deductions and progressive tax bands thereby removing some complications and leading to ensuring better accuracy, neater structure, and giving room for easier automation of PAYE calculation.
This guide explains:
- How PAYE works under the 2025 tax framework
- What counts as deductible income
- How to calculate PAYE step-by-step
- How to use a ready-made Excel payroll template that already handles everything for you
Some Highlights of the Nigeria Tax Act as it relates to employees and PAYE Calculation.
1. What Has Changed Under the Nigeria Tax Act 2025?
Key Updates
- New Progressive Tax Bands: The tax brackets have been revised with a 0 % rate for lower incomes and a top rate of 25 % for high earners.
- Consolidated Relief Allowance (CRA): The old CRA (₦200,000 + 20 % of gross) has been abolished.
- Rent Relief Introduced: Individuals can claim rent relief capped at ₦500,000 or 20 % of actual annual rent paid (whichever is lower).
- Statutory Deductions: Pension, NHF, and other allowable deductions remain relevant in determining taxable income.
Key Point: Employees earning ₦800,000 or less per year are fully exempt from PAYE under the new law.
2. Components of PAYE Calculation
2.1 Gross Income
Gross income is the total earnings before deductions. Typical inclusions:
- Basic salary
- Housing allowance
- Transport allowance
- Other taxable allowances and benefits
2.2 Statutory Deductions
These are deducted from gross income to determine chargeable income:
- Pension Contribution: Typically, 8 % of gross (employee portion)
- National Housing Fund (NHF): 2.5 % of gross (if applicable)
- Approved Rent Relief: Lower of ₦500,000 or 20 % of annual rent paid
2.3 Chargeable Income
Chargeable income = Gross annual income − statutory deductions − rent relief.
2.4 Applying Tax Bands
Once the chargeable income is determined, the progressive tax rates are applied across each band.
A very Simple Example of PAYE Calculation:
If Chargeable Income = ₦3,000,000
- 0 – ₦800,000 @ 0% = ₦0
- Next ₦2,200,000 @ 15% = ₦330,000
Total Annual PAYE = ₦330,000
Monthly PAYE = ₦330,000 / 12 = ₦27,500
3. Step-by-Step PAYE Calculation in Excel (Updated Template)
Below is a breakdown of an Excel template you can use to compute PAYE under the Nigeria Tax Act 2025:
4. Compliance and Reporting
Employers must:
- Deduct PAYE monthly and remit to the relevant State Internal Revenue Service (SIRS)
- Report on PAYE and other statutory deductions in payroll reports
- Maintain records to support rent relief claims and statutory deductions
Understanding PAYE Under the Nigeria Tax Act 2025
PAYE (Pay-As-You-Earn) is calculated annually and spread monthly. The process now follows this structure:
Step 1. Determine Gross Annual Income
This includes:
- Basic salary
- Housing allowance
- Transport allowance
- Other taxable allowances
Everything is annualized.
Step 2. Deduct Allowable Items
Under the new framework, CRA has been removed. Instead, taxable income is reduced by actual deductible items such as:
- Employee pension (8%)
- NHF (2.5%)
- Voluntary additional pension
- NHIS
- Life insurance
- Rent relief (lower of 20% of rent paid or ₦500,000)
These are deducted directly from gross income to arrive at chargeable income.
Step 3. Apply Progressive Tax Bands
New Tax Bands (Annual Chargeable Income)
Chargeable income is taxed progressively as follows:
| Annual Chargeable Income | Rate |
| ₦0 – ₦800,000 | 0% |
| Next ₦2,200,000 | 15% |
| Next ₦9,000,000 | 18% |
| Next ₦13,000,000 | 21% |
| Next ₦25,000,000 | 23% |
| Above ₦50,000,000 | 25% |
Employees earning ₦800,000 or less annually pay zero PAYE.
The total annual tax is then divided by 12 to get monthly PAYE.
Download the PAYE 2025 Excel Payroll Template
To save you the manual work, I have built a professional Excel template that already implements:
- Annualized inputs
- NHF toggles
- Automatic rent relief
- Voluntary deductions
- Progressive PAYE bands
- Monthly tax conversion
- Formula protection
👉Download the 2025 Excel PAYE Template through the link below:
Nigeria PAYE 2025 – Excel Payroll Template
Now that you have downloaded, read on for more information on how to get the best out of the tool.
How to Use the Template
The sheet is designed like a mini payroll engine. All that you need to do is to enter data into the input columns. All calculations run automatically. Do not try to enter anything on purple cells as they have formular that does the magic for you.
1. Enter monthly Earnings
Fill in:
- Employee Name
- Basic Salary (monthly)
- Housing Allowance (monthly)
- Transport Allowance (monthly)
- Other Allowances (monthly)
Gross annual income is calculated for you once you enter all the above details.
2. Choose NHF
- Apply NHF? There is a Yes/No toggle that you should select from. The appropriate amount is calculated if ‘Yes’ is selected and zero is applied when ‘No’ is selected.
If YES → deduction applies
If NO → deduction becomes zero
No formulas required. This is good news as you do not need to do anything else other than say yes or no. Isn’t that awesome?
3. Enter Other Deductibles (Monthly)
You can optionally enter:
- Voluntary Additional Pension
- NHIS
- Life Insurance
- Annual Rent Paid
Rent relief is calculated automatically using the following logic (Lower of (20% × Rent) or ₦500,000). Again, you don’t need to enter any formula.
4. Review Results (Auto-Generated)
The template instantly produces:
- Total deductions
- Chargeable income
- Tax per band (this gives extra insight into what you are paying).
- Annual PAYE
- Monthly PAYE
- Net monthly pay (to get this, add other deductions in the extra columns provided).
These calculation columns are locked and hidden to prevent accidental edits. You as the users only interact with input fields.
Built for Multiple Employees
Formulas already run down the sheet (up to 200 rows). Simply paste new employees’ details into the next row and please no dragging required for the cells colored purple.
This makes the template suitable for:
- SMEs
- HR consultants
- Accountants
- Payroll officers
- Startup payroll systems
Common Problems with existing PAYE templates and tools
Most Nigerian payroll errors happen because:
- CRA is still being applied
- Rent relief is calculated wrongly
- Bands are hard coded incorrectly
- Formulas get overwritten
This template solves all of that by:
✅ Removing CRA completely
✅ Applying statutory deductions correctly
✅ Handling rent relief automatically
✅ Using 2025 tax bands
✅ Protecting calculations
✅ Supporting batch payroll
It behaves like a lightweight payroll engine inside Excel.
Final Thoughts
Nigeria’s 2025 tax reforms demand cleaner payroll logic and better tooling.
Whether you are running payroll for one employee or fifty, this template gives you a compliant foundation that all your payroll journey can be built on while remaining simple enough for everyday Excel users.
If you are building payroll systems, offering HR services, or managing staff internally, this provides a practical starting point. It is worth stating that under the Nigeria Tax Act 2025, PAYE computation has been modernized with a clearer progressive tax structure, the abolition of CRA, and the introduction of rent relief. The changes provide tax relief for lower earners and require updated payroll systems to ensure compliance from January 1, 2026, onward.
