How do I handle personal transactions in business records?

Q: How do I handle personal transactions in business records?

In 2026, the Nigeria Tax Act 2025 and the Nigeria Revenue Service (NRS) have made "Commingling" (mixing personal and business money) a high-risk activity. Because tax authorities now use automated data matching with your bank, unexplained personal transfers can be wrongly taxed as business income. Here is the professional way to handle personal transactions in your records: 1. The "Drawings" Account (For Business Names) If you are a sole proprietor or partner, you don't earn a "salary" in the ey

In 2026, the Nigeria Tax Act 2025 and the Nigeria Revenue Service (NRS) have made "Commingling" (mixing personal and business money) a high-risk activity. Because tax authorities now use automated data matching with your bank, unexplained personal transfers can be wrongly taxed as business income.

Here is the professional way to handle personal transactions in your records:

1. The "Drawings" Account (For Business Names)

If you are a sole proprietor or partner, you don't earn a "salary" in the eyes of the law; you take Drawings.

How to record it: Create an equity account in your books called "Owner’s Drawings."
The Process: When you need money for personal use, transfer it from the business account to your personal account. Label the bank narration clearly as "Owner Draw [Date]."
Tax Impact: Drawings do not reduce your business profit. You are taxed on the total profit of the business, regardless of how much you "drew" out for yourself.

2. The "Director’s Loan Account" (For LTD Companies)

For a company, you and the business are separate people. Any personal money you take out or put in must be recorded in a Director’s Loan Account (DLA).

Scenario	Record as...	Description
You lend the business money	DLA Credit	The business owes you. You can withdraw this later tax-free.
You take a personal loan	DLA Debit	You owe the business. In 2026, if not repaid within 9 months, it may attract a "Deemed Dividend" tax.
You buy fuel for yourself	Personal Expense	Do not record this as a business expense. Categorize it as a DLA Debit (Loan to Director).

3. How to Pay Yourself Properly

To keep your records clean for an NRS audit, avoid "spending from the till." Use one of these two structured methods:

The Salary Method (Recommended): Register yourself for PAYE tax. Transfer a fixed amount monthly (e.g., ₦200,000) and remit the tax to the State IRS. This makes your personal income "official" and defensible.
The Reimbursement Method: If you use your personal card to buy a business printer, keep the receipt. Write a "Payment Voucher" and transfer the exact amount from the business account to yourself. Label it: "Reimbursement for [Item] - Receipt #[001]."

4. The "Narration" Rule (Critical for 2026)

The 2026 NRS AI systems scan your bank narrations. Vague descriptions are your enemy.

❌ BAD Narration: "Transfer," "Urgent," "Food," "Me." (The NRS may assume these are undeclared sales).
✅ GOOD Narration: "Owner's Draw - Personal," "Director Loan Repayment," "Reimbursement for Office Stationery."

5. Summary Checklist for 2026

Stop "Mixed" Spending: Never pay for personal groceries with your business card.
Separate Accounts: Maintain a dedicated business bank account linked to your TIN.

Monthly Reconciliations: At the end of every month, look at every transfer to your personal account and ensure it is categorized as either Salary, Dividend, or Director's Loan.