Every landlord faces a tenant who falls behind. Besides the lost income, arrears create a tax question: do you pay tax on rent you have not received? The answer depends on the route you use, and keeping good records protects you either way.

Chase the rent early

Late rent grows quickly into a large debt. A routine helps:

  1. Send a friendly reminder the day after the due date.
  2. Follow up with a written notice a week later, quoting the lease clause.
  3. Meet the tenant to agree a payment plan in writing.
  4. Take legal advice on notices and next steps before you try to evict; the law has rules for each stage.

Record every contact in the notes column of your register. The rental property and tenant register and the credit control and bad debt tracker help you track balances and next steps.

Tax on the flat monthly route

Under the flat monthly rental income tax, tax is charged on gross rent. If you have not received it, check how KRA treats rent due but unpaid, and keep the evidence of what you collected, because the monthly return is based on what you declare for the month. Record rent when it arrives and keep the proof of arrears separately. Ask KRA or a tax agent about your case; see how to file a monthly rental income return.

Tax on the annual route

On the annual route, a debt that is properly written off as bad can be deducted, if you included the rent in your income. To support a deduction you should have:

  • The tenancy agreement and rent statements showing the debt
  • Evidence that you chased the debt
  • A decision, recorded in writing, that the debt is not collectable

Deducting a debt is not automatic, and KRA may ask for proof. A debt you later recover must be added back to your income.

The deposit

A deposit held can be used to cover unpaid rent. When you keep it for that purpose it becomes income to you, so record the amount used. See rent receipts and tenant deposits.

Tenants who withhold tax

If a business tenant withholds tax from your rent, but then does not pay the rest, you may hold a certificate for tax on rent you never received. Raise it with KRA, and keep the certificate. See withholding tax on rent.

Do not let it affect your filing

Even when rent is late, file your returns by the due date; the penalty for filing late is far worse than the cost of the debt. Estimate what delay costs with the KRA penalty calculator.

Reduce the risk

  • Check the tenant's references and identity.
  • Collect a deposit that covers at least a month or two of rent.
  • Use a written lease and give receipts.
  • Make payment easy, by M-Pesa or standing order.

Our guide to the records every landlord should keep shows how to organise the paperwork, and the rental income tax calculator helps you see the tax effect of rent that is missing.

Tax treatment of bad debts is technical. Confirm your position with a registered tax agent or KRA.