Closing a business is rarely as simple as stopping trading. If tax returns, staff dues and registrations are not properly closed, the business keeps accruing penalties on KRA's system for months or years, and the owner or directors may be chased for them. A planned wind-down avoids that. This guide covers the steps for a sole proprietorship and a limited company in general terms. Complex cases, such as insolvent companies, need an advocate or an insolvency practitioner.

Step 1: decide the closing date and tell the people who matter

Pick a clear last trading date and write it down. Inform staff, customers, suppliers, the landlord and your bank. Check contracts for notice periods and penalties, and see whether any stock or equipment should be sold or returned.

Step 2: settle staff and statutory dues

If you have employees, their contracts end and they are owed all pay up to the last day, unused leave, notice pay and, where the termination is a redundancy, severance pay. Calculate each with the severance pay calculator and read how redundancy and severance pay are taxed. Pay PAYE, NSSF, SHIF and housing levy on those payments by the usual deadlines, and give each employee a P9 and a certificate of service. The statutory remittance tracker shows what is still unpaid.

Step 3: collect debts and pay creditors

Chase unpaid invoices using the steps in invoicing and getting paid on time, and pay suppliers, loans and the landlord. Where a debt cannot be recovered, record it as a bad debt: see the credit control and bad debt tracker. Taxes come before shareholders in the order of payment, so do not distribute cash to owners until KRA is cleared.

Step 4: file the final returns

File all outstanding returns up to the closing date: VAT, PAYE, turnover tax or income tax. Then file a final income tax return covering the period from the start of the tax year to closing, and mark it as final where iTax allows. Companies compute tax on profit up to closing using the corporation tax calculator, including any gain on sale of assets. Unfiled months attract penalties: estimate them with the KRA penalty calculator and see KRA penalties and interest explained.

Step 5: deal with assets

Sale of equipment, vehicles or property at closing can create taxable gains or balancing charges. Compare the sale price with the tax value of each asset, using the fixed asset register and fixed assets and capital allowances explained. Stock sold at a discount is still sales for income tax and, if registered, for VAT.

Step 6: cancel KRA obligations

Once returns are filed and tax paid, apply on iTax to cancel the tax obligations, such as VAT, PAYE and turnover tax, and to deregister the business from VAT where applicable. KRA checks that returns are complete and may audit before approving, so expect questions. Keep the cancellation confirmation. Also close your NSSF, SHIF and county business permit accounts, and cancel the eTIMS or other systems you used.

Step 7: deregister with the registry

  • Sole proprietorship or partnership: apply to the Registrar of Business Names to deregister the name.
  • Limited company: apply to the Registrar of Companies to strike off the company, once it has no assets or liabilities and has filed all annual returns. A company with debts or disputes should follow a formal process of voluntary liquidation instead.

Step 8: close the bank and keep records

Close accounts after final payments clear. Keep tax records, ledgers, invoices and payroll files for at least five years, as explained in how to keep business records for KRA, because KRA can audit closed businesses and former directors can still be asked to produce them.

Checklist

  1. Closing date set and written notice given
  2. Staff paid and certificates issued
  3. Debtors chased, creditors paid
  4. All returns filed and tax paid
  5. Assets sold or transferred, tax computed
  6. KRA obligations cancelled, registry deregistered
  7. Records archived

Common mistakes

Stopping trading without cancelling VAT or PAYE, leaving a nil-return obligation on the system, withdrawing cash before settling KRA, and forgetting the final return. The first two keep generating penalties even though the business is dormant, as described in nil returns explained.

Frequently asked questions

Can I simply stop filing if the business made no money? No. File nil returns until the obligations are cancelled, otherwise late filing penalties continue to build.

What happens to the PIN when a business closes? A business PIN stays on the system. The obligations are cancelled, but the PIN and its history remain.

Who is liable for tax after a company is struck off? KRA can pursue unpaid tax in certain circumstances, including against directors in some cases. Clear all tax before striking off.

Can I restart the same business later? Yes. You can re-register obligations or form a new entity, but old unpaid tax must still be settled.