KRA VAT Filing Made Simple

KRA Value Added Tax (VAT) filing can seem complex, but with the right approach and understanding, it becomes a manageable part of your business operations. This comprehensive guide will walk you through the entire process step by step.

Understanding VAT in Kenya

VAT is a consumption tax levied on the supply of goods and services. In Kenya, the standard VAT rate is 16%, with some items exempt or zero-rated.

VAT Rates in Kenya

Standard Rate (16%):

• Most goods and services

• Imported goods and services

• Professional services

Zero Rate (0%):

• Exports of goods and services

• International transport services

• Certain basic food items

• Medical supplies

Exempt:

• Financial services

• Insurance services

• Educational services

• Medical services

Who Must Register for VAT?

Mandatory Registration:

• Businesses with annual taxable supplies exceeding KSh 5 million

• Non-resident suppliers of digital services

• Importers of goods

Voluntary Registration:

• Businesses below the KSh 5 million threshold

• Businesses that want to claim input VAT

• Exporters who want to claim refunds

VAT Filing Requirements

Filing Frequency

Monthly Returns (VAT 3):

• Most VAT-registered businesses

• Due by the 20th of the following month

• Required even if no transactions occurred

Quarterly Returns:

• Available for small businesses (with KRA approval)

• Due by the 20th of the month following the quarter

Required Information

Your VAT return must include:

• Total sales (output VAT)

• Total purchases (input VAT)

• VAT payable or refundable

• Supporting schedules and documentation

Step-by-Step Filing Process

Step 1: Gather All Documentation

Sales Documentation:

• Sales invoices issued

• Cash sale receipts

• Credit notes issued

• Export documentation

Purchase Documentation:

• Purchase invoices received

• Import documentation

• Debit notes received

• Expense receipts with VAT

Step 2: Calculate Output VAT

Standard Supplies (16%):

• List all taxable supplies made during the period

• Calculate VAT at 16% on the value of supplies

• Include VAT on imports and deemed supplies

Zero-Rated Supplies:

• List all zero-rated supplies (exports, etc.)

• No VAT charged but must be reported

Exempt Supplies:

• List all exempt supplies

• No VAT charged and not included in VAT calculations

Step 3: Calculate Input VAT

Allowable Input VAT:

• VAT paid on business purchases

• VAT on imports for business use

• VAT on business expenses

Non-Allowable Input VAT:

• VAT on entertainment expenses

• VAT on personal expenses

• VAT on exempt supplies

Step 4: Complete the VAT Return Form

Section A: Sales (Output VAT)

• Enter total value of standard supplies

• Enter total value of zero-rated supplies

• Enter total value of exempt supplies

• Calculate total output VAT

Section B: Purchases (Input VAT)

• Enter total value of standard purchases

• Enter total value of imports

• Calculate total input VAT

Section C: VAT Calculation

• Output VAT minus Input VAT

• Determine amount payable or refundable

Step 5: File Online via iTax

Login Process:

1. Go to the iTax portal (itax.kra.go.ke)

2. Enter your PIN and password

3. Select "Returns" from the menu

4. Choose "VAT" returns

Filing Process:

1. Select the correct tax period

2. Enter the calculated figures

3. Attach supporting schedules if required

4. Review all entries for accuracy

5. Submit the return electronically

6. Print the acknowledgment receipt

Step 6: Payment

If VAT is Payable:

• Pay through approved banks

• Use the payment slip generated from iTax

• Payment due by the 20th of the following month

• Keep payment receipts for records

If VAT Refund is Due:

• Submit supporting documentation

• KRA will verify the claim

• Refund processing may take several months

Common Mistakes to Avoid

Documentation Errors

Missing Information on Invoices:

• Supplier's VAT registration number

• Date of supply

• Description of goods/services

• VAT amount clearly shown

Incomplete Records:

• Missing purchase invoices

• Unrecorded cash sales

• Missing import documentation

Calculation Mistakes

Common Errors:

• Mixing VAT-inclusive and VAT-exclusive amounts

• Applying wrong VAT rates

• Mathematical errors in totals

• Including non-allowable input VAT

Timing Issues

Late Filing Penalties:

• 5% of tax due or KSh 10,000 (whichever is higher)

• Additional 2% per month for continued default

Late Payment Interest:

• 2% per month on outstanding amounts

• Compounded monthly

VAT Compliance Best Practices

Monthly Reconciliation

Regular Reviews:

• Reconcile VAT accounts monthly

• Match returns to accounting records

• Investigate and resolve discrepancies promptly

• Maintain supporting documentation

Record Keeping

Essential Records:

• All sales and purchase invoices

• Bank statements and payment records

• Import/export documentation

• VAT returns and payment receipts

• Correspondence with KRA

Retention Period:

• Keep all VAT records for at least 5 years

• Store both physical and digital copies

• Ensure records are easily accessible for audits

Using Technology

Accounting Software Benefits:

• Automatic VAT calculations

• Real-time reporting

• Error reduction

• Audit trail maintenance

Recommended Features:

• VAT rate management

• Invoice generation with VAT

• Purchase recording with VAT

• VAT return preparation

Dealing with VAT Audits

Preparation

Be Ready With:

• Complete and organized records

• Supporting documentation

• Explanation for any discrepancies

• Professional representation if needed

During the Audit

Best Practices:

• Cooperate fully with KRA officials

• Provide requested information promptly

• Ask for clarification if needed

• Keep copies of all documents provided

After the Audit

Possible Outcomes:

• No adjustments required

• Additional VAT assessment

• Penalties and interest charges

• Refund if overpaid

VAT Refunds

When You Can Claim Refunds

Eligible Situations:

• Input VAT exceeds output VAT

• Zero-rated supplies (exports)

• Business closure or deregistration

• Capital goods purchases

Refund Process

Required Documentation:

• Completed refund application

• Supporting invoices and receipts

• Bank statements

• Export documentation (if applicable)

Processing Time:

• Simple refunds: 30-60 days

• Complex refunds: 3-6 months

• May require physical verification

Getting Professional Help

When to Seek Help

Consider professional assistance if you:

• Have complex business operations

• Make significant exports or imports

• Face a VAT audit

• Have recurring compliance issues

• Want to optimize your VAT position

What Professionals Can Do

Services Offered:

• VAT return preparation and filing

• Compliance reviews and audits

• Refund claim assistance

• Representation during KRA audits

• Training for your accounting staff

Conclusion

KRA VAT filing doesn't have to be complicated. With proper preparation, accurate record-keeping, and understanding of the requirements, you can ensure compliance while minimizing your administrative burden.

The key to successful VAT management is staying organized throughout the month, not just at filing time. Implement good record-keeping practices, understand the VAT implications of your transactions, and don't hesitate to seek professional guidance when needed.

Remember, VAT compliance is not just about avoiding penalties – it's about managing your cash flow effectively and ensuring your business operates smoothly within the tax system.

At Tax Room Kenya, we specialize in KRA VAT management and compliance, and can help streamline your VAT processes while ensuring accurate filing and optimal cash flow management. Our experienced team understands the complexities of VAT regulations and can provide the support you need to stay compliant.