VAT Filing Made Simple: Step-by-Step Process

Value Added Tax (VAT) filing can seem complex, but with the right approach and understanding, it becomes a manageable part of your business operations. This comprehensive guide will walk you through the entire process step by step.

Understanding VAT in Kenya

VAT is a consumption tax levied on the supply of goods and services. In Kenya, the standard VAT rate is 16%, with some items exempt or zero-rated.

VAT Rates in Kenya

Standard Rate (16%):

Most goods and services
Imported goods and services
Professional services

Zero Rate (0%):

Exports of goods and services
International transport services
Certain basic food items
Medical supplies

Exempt:

Financial services
Insurance services
Educational services
Medical services

Who Must Register for VAT?

Mandatory Registration:

Businesses with annual taxable supplies exceeding KSh 5 million
Non-resident suppliers of digital services
Importers of goods

Voluntary Registration:

Businesses below the KSh 5 million threshold
Businesses that want to claim input VAT
Exporters who want to claim refunds

Step-by-Step Filing Process

Step 1: Gather All Documentation

Sales Documentation:

Sales invoices issued
Cash sale receipts
Credit notes issued
Export documentation

Purchase Documentation:

Purchase invoices received
Import documentation
Debit notes received
Expense receipts with VAT

Step 2: Calculate Output VAT

Standard Supplies (16%):

List all taxable supplies made during the period
Calculate VAT at 16% on the value of supplies
Include VAT on imports and deemed supplies

Zero-Rated Supplies:

List all zero-rated supplies
No VAT to charge, but maintain records
Important for input VAT claims

Step 3: Calculate Input VAT

Allowable Input VAT:

VAT paid on business purchases
VAT on imports for business use
VAT on business expenses

Non-Allowable Input VAT:

VAT on entertainment expenses
VAT on personal expenses
VAT on exempt supplies

Step 4: Complete VAT Calculation

Net VAT Position:

Output VAT minus Input VAT
If positive: VAT payable to KRA
If negative: VAT refund claimable

Step 5: File Online via iTax

Login Process:

Go to the iTax portal (itax.kra.go.ke)
Enter your PIN and password
Select "Returns" from the menu
Choose "VAT" returns

Filing Process:

Select the correct tax period
Enter the calculated figures
Attach supporting schedules if required
Review all entries for accuracy
Submit the return electronically
Print the acknowledgment receipt

Filing Deadlines and Penalties

Monthly Filers

Filing Deadline: 20th of the following month Payment Deadline: 20th of the following month

Quarterly Filers (Small businesses)

Filing Deadline: 20th of the month following the quarter Payment Deadline: Same as filing deadline

Penalties for Late Filing

Late filing penalty: 5% of tax due or KSh 10,000 (whichever is higher)
Late payment penalty: 20% per annum on outstanding amount
Interest charges: 1% per month on unpaid tax

Common Mistakes to Avoid

Incorrect VAT Rates

Using wrong VAT rates for different supplies
Misclassifying exempt vs zero-rated supplies
Applying VAT to exempt services

Poor Record Keeping

Missing or incomplete invoices
Failure to maintain proper books of account
Mixing business and personal expenses

Timing Issues

Including transactions from wrong periods
Failing to account for goods in transit
Incorrect treatment of deposits and advances

VAT Refunds

When You Can Claim Refunds

Input VAT exceeds output VAT
Exporters with zero-rated supplies
Businesses with significant capital investments

Refund Process

File VAT return showing refund position
Submit supporting documentation
KRA conducts verification (may include audit)
Refund processed upon approval

Required Documentation

Original tax invoices for input VAT claimed
Export documentation for zero-rated supplies
Bank statements and payment vouchers
Any other supporting documents requested

Best Practices for VAT Compliance

Maintain Proper Records

Keep all tax invoices and receipts
Maintain chronological filing system
Regular reconciliation of VAT accounts
Monthly review of VAT positions

Use Technology

Implement VAT-compliant accounting software
Automate VAT calculations where possible
Regular backup of electronic records
Integration with iTax for seamless filing

Regular Reviews

Monthly VAT reconciliations
Quarterly compliance reviews
Annual VAT health checks
Regular training for accounting staff

Dealing with VAT Audits

Preparation

Maintain complete and accurate records
Ensure all transactions are properly documented
Regular internal VAT compliance reviews
Professional advice when needed

During the Audit

Cooperate fully with KRA officers
Provide requested documentation promptly
Seek clarification on any unclear requirements
Maintain professional communication

Getting Professional Help

VAT compliance can be complex, especially for businesses with diverse operations or international transactions. At Tax Room Kenya, we specialize in VAT compliance and can help streamline your VAT processes while ensuring accurate filing and optimal cash flow management.

Our VAT services include:

VAT registration and deregistration
Monthly and quarterly VAT return preparation
VAT refund applications and follow-up
VAT audit support and representation
VAT planning and optimization strategies
Training for your accounting team

Our experienced team understands the complexities of VAT regulations and can provide the support you need to stay compliant while optimizing your VAT position. Contact us today to discuss how we can help your business with VAT compliance.