For many small businesses, bookkeeping used to mean a receipt book, a box of paper slips and a notebook. Electronic tax invoice management has changed that. Invoices now often pass through KRA's system, and the documents you hold affect what you can claim as an expense. These are changes in practice, not just in theory, and they reach every business that buys and sells. This guide looks at what changes day to day. Check KRA's current requirements for your situation.

What the system does

An electronic tax invoicing system lets a seller issue invoices that are recorded with the tax authority at the time of the sale. The buyer receives an invoice that carries the details needed to confirm it is genuine. For the business, this changes both sides of the books: the sales documents you issue and the purchase documents you receive. eTIMS e-invoicing explained describes how the system works.

Issuing invoices

If you are required to use the system, every sale needs an invoice or receipt issued through it, and the document must show the right details: the buyer's PIN where applicable, the description, the amount and the tax. Train anyone who handles sales on the process, and check the invoice before it goes to the customer. VAT invoices and quotations: what to include lists the contents. The invoice with VAT and quotation with VAT templates help if you prepare documents outside the system as well.

Collecting supplier invoices

On the purchase side, the change is that your expenses should be supported by invoices issued through the system. A handwritten slip may not be enough to claim a deduction or to recover input VAT. eTIMS and your expenses: what changed explains the effect on deductions. Make it a habit to ask every supplier for a proper invoice with your PIN on it, at the time of the purchase, not later.

Recording the documents

Keep each invoice, in digital or paper form, and record it against the transaction. File them by month and supplier. The receipts and invoices filing index lists each document, its reference and where it is stored, and the VAT input invoice register and the eTIMS sales invoice register track the purchase and sales sides for VAT. Capturing the invoice number in your books links the entry to the document.

Matching your books to the system

Each month, compare the invoices you issued with your sales records, and the invoices you received with your purchases. Differences point to errors, missing documents or unrecorded sales. Fix them before you file your returns. This matching step is the daily-life version of reconciliation; see how to run a month-end close for a small business.

VAT returns

For VAT-registered businesses, the invoices drive the return. Output VAT comes from the sales invoices, and input VAT can be claimed only where you hold a valid invoice. Use the VAT return calculator and the VAT return working sheet to prepare the figures, and read how to file a VAT return for the steps. Claim input VAT in the right period and keep the evidence.

Turnover tax and income tax

If you pay turnover tax, your sales records determine the tax, so a complete set of sales invoices matters just as much. Test your position with the turnover tax calculator. For income tax, your expense claims depend on valid documents; see expenses small businesses can deduct. Penalties apply for failing to use the system when required; new penalty for not using the electronic tax system describes one of them.

Handling mobile money and cash

Many small sales happen by M-Pesa or cash. Each sale still needs a proper document where the rules require it. Match your till and M-Pesa statements to the invoices you issued; how to use M-Pesa statements to prove income and expenses shows how.

Practical habits that help

Ask for an invoice at the point of purchase. Photograph and file it the same day. Issue invoices as sales are made, not at the end of the week. Review the missing documents list monthly. Keep passwords for the system secure and limit who can issue documents. Back up your records.

What to do when something goes wrong

If a supplier cannot give a valid invoice, record the expense but note the risk that it may not be deductible, and consider changing supplier. If the system is down, keep a record of the sale and issue the invoice as soon as it returns, and check the guidance on interruptions. If you are unsure of the rules for your business, ask KRA or an adviser. The tools change, but the principle is the same as ever: record every sale and every expense, support each with a document and reconcile regularly.