When a business buys equipment, furniture or a vehicle, the spending is treated differently from day-to-day costs. An asset lasts several years, so its cost is spread over its life rather than charged in full in the year of purchase. For tax, this spreading is called capital allowances; in the accounts it is called depreciation. The two are related but not the same.

What is a fixed asset?

A fixed asset is something you buy to use in the business for more than a year, such as computers, machinery, furniture, vehicles and buildings. Small items below a sensible limit, like a stapler, are normally expensed straight away. Choose a limit and apply it consistently.

Depreciation in the accounts

Depreciation is an accounting estimate of how much of an asset's value is used up each year. A common method is straight line: cost less expected resale value, divided by the number of years of life. A computer costing KES 120,000 with a four-year life is depreciated at KES 30,000 a year.

Capital allowances for tax

KRA does not accept accounting depreciation as a tax deduction. Instead the Income Tax Act gives capital allowances at set rates by class of asset, such as machinery, vehicles, computers, buildings and farm works. The rates and the way they are applied have been revised in recent years, so check the current schedule before you claim. The capital allowances calculator shows the allowance on each type of asset and the tax it saves.

Qualifying hotels, hospitals, manufacturing buildings and machinery earn a larger first-year deduction; the investment deduction calculator explains it.

Why it matters for your tax

In the tax computation, add back the depreciation charged in the accounts and deduct the capital allowances instead. The result is taxable profit, on which tax is charged, for example with the corporation tax calculator. If you do not track assets properly you may miss allowances you are entitled to, or claim on an asset you have already sold.

What to record for each asset

  • Description and serial number
  • Date bought and the supplier invoice
  • Cost, including delivery and installation
  • Class or category for tax
  • Expected life and resale value
  • Date and price if you sell or scrap it

The fixed asset register with depreciation and capital allowances holds these details, calculates yearly depreciation and shows the carrying value of every asset.

When you sell or scrap an asset

A sale may give a gain or a loss compared with the tax written-down value. Record it so the allowances stop. If the asset is land or a building, capital gains tax can apply; see the capital gains tax calculator.

Supporting documents

Keep the purchase invoice, and for imports the customs entry. The eTIMS rules also affect which purchases you can deduct; read eTIMS e-invoicing explained. More on retention in how to keep business records for KRA.

Plan large purchases

A big purchase affects cash flow. Plan the payments in a 12-month cash flow forecast and check how a loan changes the monthly cost with the loan repayment and amortisation schedule.

Capital allowance rates and classes are revised by Finance Acts. Confirm the current rules with KRA or a tax adviser.

Common questions

What counts as a fixed asset? Something you buy to use in the business for more than a year, such as machinery, vehicles, computers and furniture, above a cost limit you set and apply consistently.

Is depreciation deductible? No. Accounting depreciation is not allowed for tax. Instead the law gives capital allowances at fixed rates on the cost of qualifying assets.

What happens when I sell an asset? Compare the sale price with the asset's remaining tax value. A surplus is taxable as a trading receipt and a shortfall is a trading loss, so keep the register up to date.