Selling online, tutoring, driving, designing, farming or renting a room on the side is common, and the income is taxable even if your salary has already been taxed. The good news is that the rules are manageable if you set things up from the start.

Your salary and your side income are separate

Your employer deducts PAYE from your salary and sends it to KRA, but nobody deducts tax from the side income. You must declare it yourself in your annual return, which is due by 30 June for the previous calendar year. See the 30 June tax deadline.

The two ways to be taxed on side income

Normal income tax. Add your side profit (income less allowable expenses) to your salary income. The total is taxed at the individual rates, with the tax already deducted by your employer credited. Because your salary already fills the lower bands, the side profit is usually taxed at 25% to 30%.

Turnover tax. If your side business has annual gross sales between KES 1 million and KES 25 million and is not a professional service, you may choose to pay 3% of gross sales each month instead. Most small side hustles earn less than KES 1 million, so they are not eligible. See turnover tax for small businesses for the conditions.

Which is cheaper?

For low-expense work such as consulting, normal tax on profit can still be heavy at a high marginal rate, while turnover tax is flat. For work with high costs, such as resale, normal tax on profit is usually better. The freelancer tax calculator compares both for your own numbers, and the freelancer turnover tax versus annual tax comparison workbook does it across a full year.

An example

You earn KES 100,000 a month as an employee and make KES 15,000 a month profit from tutoring. Over the year that is KES 180,000 of extra income. Taxed at the 30% band, the tax is about KES 54,000, and you would owe that when you file because no one deducted it. Setting aside 30% of each month's profit avoids the surprise.

What to record

  • Every payment received, with the date and who paid
  • Expenses linked to the side income, with receipts
  • Any tax withheld by a client, with the certificate

The free simple cashbook is enough for most side hustles, and the daily takings and expenses log suits cash businesses. The tax records checklist and document log shows what to keep.

Register and file

Make sure your KRA PIN has the right obligation. If you earn from rent, remember monthly rental income tax; see how to file a monthly rental income return. In your return, list the side income and expenses on the right schedule, and attach the P9 for your salary.

Do not forget the other rules

If sales grow past KES 5 million in a year you must register for VAT; read VAT for small businesses. If you hire anyone, payroll rules apply too.

Tax treatment depends on your facts. Confirm the details with KRA or a registered tax agent.

Common questions

Does my employer's PAYE cover my side income? No. PAYE only covers the salary your employer pays. Income from a side business, freelancing or rent is separate and must be declared on your own annual return, with tax paid on it.

Can I use turnover tax for a side hustle? Possibly, if your annual turnover from the business is within the turnover tax limits, you are not excluded and you register for it. Some professional services are excluded, so check your activity against the rules.

What expenses can I deduct from side income? Costs incurred wholly for earning that income, such as materials, transport, internet, marketing and platform fees, supported by receipts. Your personal costs and your employment expenses are not deductible against it.