Project Client: Taxaffix Limited
Project Published: February 26, 2024
Filing Income Tax Returns Efficiently: A Guide For Businesses
Businesses often rush to file their tax returns on or before the tax deadlines, lest they get locked out and later bear the brunt of penalties. But do we really know what filing tax returns is all about? It may come as no surprise that some businesses have been making unintentional mistakes while fulfilling their tax obligations. Filing returns without a clear understanding of what it entails can have several consequences and disadvantages. These include penalties and interest, loss of deductions or credits, audit risk, among others.
This comprehensive guide will provide you with everything you need to know about how to file tax returns in Kenya. We will discuss the steps that a business in Kenya should take when filing tax returns. From gathering all financial records to determining tax liability, this guide will help you nail down your tax processes.
1. Gather Financial Records
A business with a Personal Identification Number (PIN) from the Kenya Revenue Authority (KRA) should start the process of filing its tax returns by collecting all relevant financial records. The records include income statements, balance sheets, expense receipts, invoices, and any other financial documents for the tax year. In Kenya, companies must file income tax returns on or before June 30th.
2. Prepare an Income Statement
Also known as a profit and loss statement, an income statement summarises the revenues, expenses, and profits of your business for the tax year. This will help determine the net income of the business.
3. Prepare a Balance Sheet
Business 101, right? Here, develop a balance sheet that lists the assets, liabilities, and shareholders’ equity of your business at the end of the financial year. This provides you with an understanding of the business’ financial health.
4. Review Income and Expenses
In this step, analyse income and expenses to determine the net profit or loss for the tax year. It is important that you ensure all income is accounted for. Moreover, all expenses should be legitimate business expenses.
5. Account for Deductions and Allowable Expenses
Identify any deductions or allowable expenses that can be claimed. These include expenses such as rent, utilities, depreciation, and other business-related costs. This will help you reduce the tax liability of the business and keep more money in your pocket. After all, tax deductions and allowable expenses are as refreshing as a cool breeze on a hot day for your wallet.
6. Calculate Taxable Income
Subtract the identified deductions and allowable expenses from the total income. This is so you can calculate your business’ taxable income /profits.
7. Determine Tax Liability
Depending on the legal existence of your business, use the prescribed rates to determine tax payable.
N.B.: Partnerships are not taxable; rather, the partners are taxed individually.
To calculate your tax liability, refer to the current tax rates and regulations that apply to your business based on its taxable income. For example, in Value Added Tax (VAT), the general tax rate is 16% and is applicable to taxable goods and services. To find out which tax rates and regulations apply to your business, visit the KRA portal.
8. File Tax Returns
Use the appropriate tax forms provided by KRA on the i tax portal to file your tax returns accurately. Provide all the required information and ensure that the calculations are correct.
9. Pay Taxes Due
If you have a tax liability after deductions and allowances, ensure you pay taxes on time to KRA. After filing returns, generate a payment slip online via the i tax portal. Proceed to make the payment at any of the KRA appointed banks. Failure to pay taxes on time may result in penalties and interest charges.
10. Keep Records
Finally, you should keep and maintain accurate records of all your business’ financial transactions and tax filings. This is for future reference and auditing purposes. The records to be kept include copies of filed tax returns, supporting documents, and correspondences with KRA.
Whether you are a new business or an established company, the steps we have discussed are bound to help you ensure compliance with tax regulations and minimise tax liabilities. Take charge of your business finances today by consulting with a tax expert or tax calculator Kenya and explore all avenues for maximising deductions.
