If you run a business as an individual and are not on turnover tax, you file an annual income tax return by 30 June for the previous calendar year. The return reports your business profit and any other income, claims credits for tax already paid and calculates what you owe or can claim back. Filing is not hard if you keep records during the year. This guide covers the steps from records to payment.

Who files

Sole traders and freelancers, partners (for their share), landlords on annual tax and anyone with income beyond employment where PAYE does not settle the tax. Employees with only PAYE income also file, and use filing your employment return with a P9. If your income is under turnover tax, see how to register for turnover tax.

Step 1: gather your records

  • Sales records and invoices for the year
  • Bank and M-Pesa statements
  • Expense receipts, preferably eTIMS invoices: eTIMS and your expenses
  • Payroll records, if you have staff
  • Asset purchases and sales
  • Loan statements
  • Withholding tax certificates from customers
  • Instalment tax payment slips
  • Your P9 if you also have a job

If your books are not in order, start with bookkeeping for small businesses. The tax records checklist and document log lists what to keep.

Step 2: compute your profit

Profit for tax = business income less allowable expenses. Add up sales, then deduct expenses wholly and exclusively incurred for the business, such as rent, wages, supplies, transport, marketing, bank charges and interest on business loans. See expenses small businesses can deduct. Do not deduct personal spending, drawings or the repayment of loan capital. For equipment, claim capital allowances rather than the full cost: fixed assets and capital allowances explained and the capital allowances calculator. The sole trader income tax computation workbook does the arithmetic.

Step 3: compute the tax

Income tax on an individual is charged on taxable income at graduated rates. Add any other income, such as employment or rent, then calculate tax, subtract personal relief and any other relief, and subtract credits: PAYE paid, instalment tax paid and withholding tax deducted from your income. Use the freelancer tax calculator for a quick estimate, and the annual income tax estimator. If you have a loss, record it carefully: the five-year limit on carrying forward tax losses.

Step 4: file on iTax

  1. Log in to iTax with your PIN and password: how to register on iTax.
  2. Open the returns menu and choose file return, then Income Tax Resident Individual.
  3. Download the return form (Excel or online form), and complete the sections on employment, business, rent, interest and dividends, as they apply.
  4. Enter the business income and expenses. The form computes profit.
  5. Enter reliefs and credits, including withholding tax certificates and instalments paid.
  6. Review the summary, upload the file and submit.
  7. Save the acknowledgement receipt.

If there is tax to pay, generate a payment slip and pay with the PRN: how to pay KRA taxes with M-Pesa, bank and a PRN. If the credits exceed the tax, the return shows a refund: how to claim a PAYE refund explains the refund process.

Instalment tax

Business owners who expect to pay significant tax should pay instalments during the year, on the 20th of the fourth, sixth, ninth and twelfth months. Those payments are credited on the return. If you did not pay them, the return computes the full balance and late payment charges. Estimate with the instalment tax calculator and use the instalment tax planner.

Deadlines and penalties

The return and the payment of any balance are due by 30 June. Late filing costs the higher of 5 percent of the tax or KES 2,000, plus late payment penalty and 1 percent monthly interest: penalty and interest rates. Read the 30 June tax deadline.

Is a company better?

If profits are rising, test the alternatives with the sole trader vs company calculator and read sole trader or limited company.

Checklist

  1. Records complete and reconciled
  2. Profit computed with allowable expenses
  3. Credits and certificates gathered
  4. Return filed and acknowledged
  5. Tax paid with a PRN
  6. Records filed for five years

Frequently asked questions

Do I file if I made a loss? Yes. File to record the loss, which may be carried forward subject to the time limit.

Can I file before the year ends? No. The return covers a completed year of income. File after 31 December and before 30 June.

Can I deduct my own salary? No. A sole trader's drawings are not an expense. The whole profit is taxed.

What if I have both employment and business income? Report both on the same return. PAYE is a credit and the combined income is taxed at the individual rates.