A KRA audit sounds alarming, but most are routine checks that a well-organised business can handle calmly. Knowing what to expect and having your records ready turns an audit from a threat into an administrative task.
Why KRA audits
KRA selects taxpayers for several reasons: a refund claim, a return that looks different from the industry norm, differences between what you declared and what third parties reported, repeated late filing, or a random sample. Being selected does not mean that you did anything wrong.
Types of audit
- Desk (or office) audit. KRA reviews your returns and documents from its office, and asks for explanations or records.
- Field audit. Officers visit your premises to examine your books and stock.
- Issue-based audit. A check of a particular item, such as input VAT or a refund.
- Comprehensive audit. A broader review of several taxes over several years.
The process
- You receive a notice stating the tax, the period and the documents required.
- You provide the records and meet the officers.
- KRA shares its findings. You can explain or correct them.
- KRA issues an assessment if it still finds extra tax due.
- You can pay, object or appeal; see below.
Prepare your records
Auditors ask for the proof behind your returns. Have these in order:
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- Sales records and invoices, including eTIMS invoices; see eTIMS e-invoicing explained
- Purchase invoices and expense receipts, with your PIN
- Bank and M-Pesa statements for the period, reconciled to your records; see bank reconciliation step by step
- Payroll records and proof of PAYE, NSSF, SHIF and Housing Levy payments
- Filed returns and payment receipts
The tax records checklist and document log lists them, and how to keep business records for KRA explains how long to keep each. The free tax compliance self-audit checklist finds gaps before an auditor does.
During the audit
- Respond within the deadline in the notice, and ask for more time in writing if you need it.
- Be polite, honest and organised. Give only what is asked and keep a list of what you handed over.
- Ask for the findings in writing.
- Consider having a registered tax agent attend with you.
If you owe more
An assessment includes the tax, penalties and interest. Estimate them with the KRA penalty calculator and read KRA penalties and interest explained. You may be able to agree a payment plan.
If you disagree
You can lodge an objection with KRA within the time stated in the assessment, usually 30 days, giving your grounds and attaching evidence. If KRA rejects it, you can appeal to the Tax Appeals Tribunal. The KRA correspondence and objections log keeps every notice and deadline in one place. Pay the part of the tax that is not in dispute.
Reduce the chance of trouble
File on time, including nil returns; see nil returns explained. Make sure that your VAT, PAYE and withholding returns agree with each other; see how to file a VAT return.
Procedures and deadlines are set by the Tax Procedures Act and KRA notices. Confirm them with KRA or a registered tax agent.
Common questions
How long does KRA have to audit a return? In general KRA can assess tax within five years of the date a return was filed, and for longer where there is fraud or evasion. That is why records should be kept for at least five years, and why a clean, complete file is your best protection.
Should I answer an audit letter myself or use an accountant? You can answer it yourself if the questions are simple and you hold the documents, but for large amounts or technical points an accountant or tax adviser usually saves time and money. Whoever answers, reply before the deadline in the letter and keep a copy of everything sent.
What if I disagree with the audit findings? Respond to the findings letter with your evidence before an assessment is issued. If an assessment follows and you still disagree, you have 30 days from receiving it to lodge a written objection on iTax, and you must pay any tax you do not dispute.