AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Under section 20(1) of the Nigeria Tax Act 2025, a business deducts expenses "wholly and exclusively incurred in the production of the income"; section 21 then bars capital spending, private or domestic costs, taxes on profit, depreciation, fines and penalties, and any expense on which VAT was due but not charged. Salaries, rent, stock and running costs for the business are the usual deductible items; equipment is relieved through capital allowances instead.
The difference between accounting profit and taxable profit is mostly about which expenses the tax law accepts. Get this wrong and you either overpay or, worse, file a computation the NRS will reject in an audit. Here is the test, the banned list and a worked example.
The test: wholly and exclusively
Section 20(1) of the Nigeria Tax Act 2025 says that in working out profit there shall be deducted "all expenses for that period wholly and exclusively incurred in the production of the income". Many Nigerian guides quote a longer test, "wholly, reasonably, exclusively and necessarily", which was the wording widely cited under the old companies income tax law. The text of the 2025 Act we read uses "wholly and exclusively". In practice the questions an inspector asks are similar:
- Wholly: was the whole amount spent for the business, or was part of it for something else?
- Exclusively: was the business the only purpose, or was there a private benefit mixed in?
- Production of the income: is the cost linked to earning this business's income, in this period?
- Evidence: can you show an invoice, receipt or contract? Section 31 of the Nigeria Tax Administration Act 2025 requires records for at least six years.
Inspectors also look at whether an amount is out of proportion to the business, such as a director's "consultancy fee" far above market. Keep the commercial reason on file.
Usually deductible
- Cost of stock and raw materials sold in the period.
- Salaries, wages and staff pension contributions, with PAYE deducted.
- Rent for business premises, shop or office.
- Electricity, diesel, internet and phone for the business.
- Repairs and maintenance that restore an asset rather than improve it.
- Advertising, transport, professional fees and bank charges for the business.
- Interest on money borrowed for the business.
- Bad debts incurred in the trade; PwC's May 2026 summary notes bad debts with related parties are excluded.
Grey areas: mixed-use costs
Some costs serve the business and the owner at once: a car used for deliveries and school runs, a phone line, a generator at a shop with a flat above it. The "wholly and exclusively" wording means only the business share should go into the computation. Keep a simple log, such as mileage or a reasonable split agreed with your accountant, so the figure can be defended.
Never deductible: the section 21 list
Section 21 of the Act lists expenses that cannot be deducted. The items small businesses meet most often are:
| Section 21 | Not deductible | Everyday example |
|---|---|---|
| (b) | Expenditure of a capital nature | Buying a delivery van or a generator |
| (c) | Domestic or private expenses | School fees for the owner's children paid from the business |
| (e) | Taxes on profit or income, in Nigeria or elsewhere | Company income tax itself |
| (g) | Depreciation or impairment of fixed assets | The depreciation line in your accounts |
| (l) | Penalties or fines under any law | Traffic fines, late-filing penalties |
| (p) | Expense on which VAT was due but not charged | Paying a VAT-registered supplier who left VAT off |
Item (p) is new in practice for many firms: if a supplier should have charged VAT and did not, the expense may be disallowed. Ask suppliers for proper VAT invoices.
Capital allowances replace depreciation
Because capital spending and depreciation are both disallowed, the Act gives capital allowances instead. PwC's summary of the 2025 rules lists straight-line rates: Class 1 at 10% (buildings and some agricultural and intangible assets), Class 2 at 20% (plant, agricultural equipment, furniture and fittings) and Class 3 at 25% (motor vehicles and software). PwC notes the asset must have had VAT charged or import duty paid to qualify. Our guide on capital allowances goes further.
Worked example: from accounts to taxable profit
Example only, simplified, for a company that is not a small company.
| Line | ₦ |
|---|---|
| Revenue | 50,000,000 |
| Less cost of sales | (28,000,000) |
| Less salaries | (8,000,000) |
| Less shop rent | (3,000,000) |
| Less depreciation | (2,000,000) |
| Less traffic and late-filing fines | (300,000) |
| Less owner's family holiday booked through the business | (1,200,000) |
| Accounting profit | 7,500,000 |
| Add back depreciation, fines, private holiday | 3,500,000 |
| Adjusted profit | 11,000,000 |
| Less capital allowances (assumed: van, Class 3) | (1,200,000) |
| Taxable profit | 9,800,000 |
| CIT at 30% | 2,940,000 |
If the three disallowed items had been left in, taxable profit would have been understated by ₦3,500,000 and CIT by ₦1,050,000, which an audit would pick up with penalties and interest. A small company pays 0% CIT under section 56(a), but it still files the computation.
What to check first
- Separate personal and business spending; mixed accounts make the "exclusively" test hard to pass.
- Ask for VAT invoices from registered suppliers.
- Keep receipts for six years.
- Book equipment as assets, not expenses.
Where Pryme fits
Keeping business money in a Pryme Business Account separate from personal spending makes the evidence trail cleaner. The Finance agent can tag expenses and flag ones without a receipt, and you can generate a verifiable statement through VerifyDoc.ai on the receipts page for your accountant.
Questions people ask
What expenses can a business deduct for tax in Nigeria?
Expenses wholly and exclusively incurred in producing the business's income, under section 20(1) of the Nigeria Tax Act 2025: stock, salaries, rent, utilities, repairs and similar running costs.
Is depreciation tax deductible in Nigeria?
No. Section 21(g) bars depreciation; you claim capital allowances on qualifying assets instead.
Can I deduct fines and penalties?
No. Section 21(l) disallows any penalty or fine imposed under any law.
Are personal expenses paid by my business deductible?
No. Domestic or private expenses are barred by section 21(c), even if paid from the business account.
Sources
- Nigeria Tax Act 2025 (assented 26 Jun 2025), sections 8, 20, 21, 55, 56 and 59 · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, corporate deductions (reviewed 29 May 2026) · accessed Oct 2026
- Nigeria Tax Administration Act 2025 (gazette copy) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.