Common VAT Mistakes Businesses Make and How to Avoid Them
Value Added Tax (VAT) compliance is crucial for every business in Kenya. However, many businesses—especially small and medium enterprises—make common VAT mistakes that can lead to penalties, audits, or cash flow problems. This article highlights frequent errors and how to avoid them.
1. Failing to Register on Time
If your business turnover exceeds KES 5 million annually, you must register for VAT within 30 days. Delaying registration can attract fines and penalties. Also, some buyers—especially government departments and large corporations may withhold VAT at 2%, which automatically makes your business VAT-eligible even if your turnover is below the threshold.
How to avoid:
Track your turnover closely and register promptly once you hit the threshold or start supplying to entities that withhold VAT..
2. Not Issuing Proper VAT Invoices
A VAT invoice must show your business details, KRA PIN, VAT amount, and total price. Using receipts or non-compliant invoices can cause problems during audits.
How to avoid:
Use standardized VAT invoices and ensure all details are correct.
3. Mixing Personal and Business Expenses
Including personal expenses in business records leads to inaccurate VAT claims and potential tax issues.
How to avoid:
Maintain separate accounts and records for business and personal finances.
4. Incorrectly Claiming Input VAT
Input VAT can only be claimed on purchases directly related to your taxable business activities. Claiming VAT on exempt goods or non-business items is disallowed.
How to avoid:
Keep clear records and consult experts when unsure about claim eligibility.
5. Late or Incomplete VAT Returns
Filing VAT returns late or submitting incomplete returns results in penalties and interest.
How to avoid:
Set reminders for VAT deadlines and double-check your returns before submission.
6. Not Keeping Proper Records
KRA requires businesses to keep VAT records for at least five years. Poor record-keeping can lead to disallowed claims or audits.
How to avoid:
Implement organized filing systems—both digital and physical—and back up records regularly.
Need Expert Help?
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