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Home Domestic Taxes VAT About VAT Accounting for VAT

Accounting for VAT PDF Print


After charging VAT, you are required to account for it to the

Commissioner. The VAT legislation stipulates following ways in which you should account for the tax:

a) Issuing a Tax Invoice

A Tax invoice is the most important instrument of VAT control. The VAT Law requires you to issue a tax invoice for every supply of taxable goods or taxable services, which must show the amounts of tax charged. You must therefore furnish the purchaser with a tax invoice at the time of supply.

A Tax invoice shall be serially numbered and:- (a) generated through a register (ETR); or

                                                                    (b) Attached to a register receipt                                                                        

 Aproper tax invoice must have the following information: -

(a) Name, address, VAT registration number and personal Identification number (PIN) of supplier

(b) Serial number of the invoice

(c) Date of the invoice.

(d) The date of the supply if different from date of invoice.

(e) The name, address, VAT registration number, if any, and Personal Identification Number of the person to whom the supply was made if known to the supplier.

(f) The description, quantity and price of the goods or services being supplied.

(g) The taxable value of the goods or services, if different from the price charged.

(h) The rate and amount of tax charged on each of those goods and services.

(i)Details of whether the supply is cash or credit and any discounts.

(j) Total value of the supply and the total amount of VAT.

(k) The logo of the business of the person issuing the invoice

(l) The identification number of the register.

Where cash sales are made from retail premises and subject to conditions prescribed by the Commissioner, a registered person may issue a simplified tax invoice that is a register receipt and shall include the following information;

(a) The name, address, VAT registration number and personal identification number of the user of the register.

(b) The logo and identification number of the register

 (c) The serial number of the receipt

(d) The date and time of issue of the receipt.

(e) The name, quantity, unit price, chargeable tax rate and the value of the recorded sales of goods or services.

(f) The tax amount payable

(g) The total amount payable tax inclusive.

NB. Possession of a supplier's register tax invoice (original purchase invoice) is sufficient authority for input tax deduction irrespective of whether the supply has been paid for.

b) Input Tax Deduction

As a registered person you are entitled to input tax deductions for VAT paid on inputs which relate directly to your taxable supplies except where the law prohibits.

The basis of claiming input tax is the possession of a proper tax invoice (ETR generated) showing VAT charged by your suppliers or Customs entries in case of imported goods.

According to section 11 of the VAT Act you shall not deduct input tax of more than twelve (12) months after the input tax became due and payable.

Please note that input tax incurred on certain inputs (purchases) is prohibited for deduction: -These includes: -

- All oils for use in vehicles(including motor vehicles and similar vehicles), ships, boats and other vessels

- Passenger vehicles and minibuses and the cost of their maintenance unless where such vehicles have been specifically designed or modified and primarily used for the supply of taxable goods or services subject to prior approval of the Commissioner;

- All motor vehicles (other than the passenger cars and minibuses), bodies, parts and services for repair and maintaining of such vehicles except where the goods are used primarily for the supply of taxable goods and services;

- Furniture, fittings and ornaments or decorative items in buildings other than items permanently attached to buildings; or such goods for use in hotels and restaurants subject to the approval of the Commissioner;

- Household or domestic electrical appliances other than those approved by the Commissioner for use in the manufacture of taxable goods or services e.g. in hotels and restaurants;

- Entertainment services

- Restaurant services

- Accommodation services

- Taxable Supplies for use in staff housing and other similar establishments for the welfare of staff.

(C) Keeping Records

You are required to keep business records and books of accounts and avail them for verification by an authorized revenue officer whenever demanded. The records include: -copies of all sale invoices, original purchase invoices, credit and debit notes, customs entries, audited accounts, ledgers, cash books, bank statements, copies of ETR monthly printout pay-in-slips and a summary of VAT Accounts. Records must be kept for a minimum period of five (5) years.

d). Submission of Returns

As a registered person you are required at monthly intervals to submit through an Online VAT3 return the tax charged to your customers.

The Taxpayer generates an E-slip which is used to physically pay the tax at the KRA appointed Banks.  The Taxpayer may however authorize his bank to pay the tax through a direct credit transfer to the Commissioners account at the central Bank of Kenya. 

All NIL and Repayment Returns are also to be submitted Online.  The due date for submission of returns is on or before 20th of the month succeeding that in which the sales were made.

It is important to note that tax is due and payable to the Commissioner (Tax Points) when; -

(i) Goods or services are supplied to the purchaser; or

(ii) An invoice is issued in respect of the supply; or

(iii) Payment is received for all or part of the supply; or

(iv) A certificate is issued by an architect, surveyor or any person acting as consultant or in a supervisory capacity in respect of the service.

Whichever is the earliest.

Failure to submit a return on the due date or submission of a payment return without payment of the tax due results in an imposition of a default penalty of Kshs.10,000 or 5% of the tax due whichever is higher and an additional tax of 2% compounded per month or part thereof such unpaid tax.

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