Step-by-Step Guide to Filing PAYE Returns in Kenya

PAYE is one of the most significant taxes in Kenya and a substantial contributor to our GDP. Every employer is required to deduct these taxes from their employees’ wages, remit them to the KRA, and file a return. Failure to do so or late filing attracts penalties and interest.

The PAYE landscape is constantly changing, and employers might find it daunting to keep track of all requirements. Recent developments like the Affordable Housing Levy and the Social Health Insurance Fund (SHIF) have left many employers and employees unsure of how to file PAYE returns in Kenya.

At Gichuri & Partners, we keep up with all changes and developments in Kenya’s tax landscape to keep you updated. We prepared this step-by-step guide to filing PAYE returns in Kenya to simplify it for you.

What is PAYE?

PAYE is an acronym for pay-as-you-earn. It is a type of tax collection whereby an employer is required to deduct their employees’ taxes from their gross income and remit them to the Kenya Revenue Authority (KRA). Is every employer required to pay this PAYE? Not really. PAYE is eligible for companies, businesses, and organizations whose employees earn a salary beyond the provided tax-free threshold. In Kenya, this threshold is below Ksh. 24,000.

An Overview of PAYE Rates in Kenya

The PAYE rates in Kenya aren’t uniform. Tax rates vary depending on the salary level, also known as Tax Bands. These rates range from 10% to 35%.

Here’s a breakdown of the PAYE tax rates according to the Finance Act 2023:

Glossary of Important Terms in PAYE

Calculating PAYE is one of the most challenging parts of paying and filing PAYE returns in Kenya. You need to understand terms like taxable income, tax relief, allowable deductions, and non-chargeable income. Let’s see what these terms mean below.

Taxable Income

Taxable income is employment income that is subject to taxation as per the PAYE terms provided by the Finance Act. In Kenya, taxable income includes:

• Wages
• Salaries
• Allowances
• Commissions
• Bonuses
• Overtime, sick leave, and other kinds of pay

Tax Reliefs

Tax relief is a deduction made on the taxable income to lessen the tax burden on a taxpayer. In Kenya, you’re entitled to a personal tax relief of Ksh. 2400. Other reliefs include:

• Insurance relief
• Owner-occupier interest relief
• Disability relief

Allowable Deductions

Allowable deductions are statutory deductions that KRA allows you to deduct from your taxable income to lessen the tax burden. These include:

• NSSF
• SHIF
• Mortgage interest
• Pension contribution
• SACCO deposits

Note: The Affordable Housing Levy is a statutory deduction, but it’s deducted from the gross pay and not the taxable income. As such, it doesn’t reduce your tax burden.

Non-Chargeable Income

This is employee income that’s not subject to taxation under PAYE. It includes:

• Travel and work expenses
• Medical cover
• Gratuity payment

How to File PAYE Returns in Kenya: Step-by-Step Guide

PAYE returns in Kenya are made by the employer via the iTax platform. Here’s the step-by-step guide:

Step 1: Log in to iTax

• Open your browser and go to https://itax.kra.go.ke/.
• Enter your KRA PIN and click Continue.
• Enter your password and the security stamp, then select Login.

Step 2: Navigate to the Returns Tab

• Click on Returns and select File Return.
• Select the Tax Obligation (Income Tax PAYE).
• Click Next.

Step 3: Download the Return Form and Fill In Return Details

• Click on the provided link on the screen to download the return form onto your computer.
• Open the form from your downloads folder.
• The Excel sheet contains various sections. Click on Enable Editing to start filling in the required details.
• Fill in all mandatory parts accurately. You can also choose to add the CSV file from the payroll system to autopopulate key areas.
• Once you’ve filled in all the required details, click Validate.

Step 4: Upload the Zip File

• When you validate the Return form, it is saved as a zip file in your documents folder.
• Quit the Excel workspace and return to your iTax portal.
• Select the type of return and return period. The other sections are autopopulated.
• Go to the Upload Form section. Choose the zip file you saved in the above step and click Add File.
• Select the Agreement checkbox to accept the terms.

Step 5: Submit the Return Form

• Click Submit.
• The system will ask whether you want to upload the form. Click OK.

Step 6: Download the Acknowledgment Receipt

• Upon successful upload of the PAYE return form, you’ll get an acknowledgment receipt.
• Click on the provided link( Download Returns Receipt) to download the receipt.

That’s all. You have successfully filed PAYE returns.

PAYE Payment

You need to remit the deducted tax to KRA after filing the returns. Both the filing and payment should be done on or before the 9th of the following month. PAYE payments are done every month. For instance, the PAYE payment and return filing for June should be done on or before 9th July. Here are the steps to pay PAYE to KRA:

1. Log in to the iTax portal.
2. Go to the Payments tab.
3. Select Payment Registration.
4. Choose Income Tax under the Tax head.
5. Choose Income Tax-PAYE under the tax subhead.
6. Select Self-Assessment under Payment Type.
7. Choose the tax period.
8. Select the liability and click Add.
9. Choose Other Payment Mode or RTGS under Mode of Payment.
10. Click Submit.
11. The system will generate a Payment Slip. Download the slip. You’ll also receive a copy of the slip via email.
12. Make the payments through KRA-approved banks, MPESA, or Debit/Credit card.

You have successfully remitted the due PAYE taxes to KRA.

Tips and Tricks For Filing PAYE Returns in Kenya Successfully

Follow these tips for successful filing of PAYE returns as an employer:

• Understand allowable deductions and reliefs: Stay up to date with all allowable deductions and reliefs like NSSF, SHIF, Affordable Housing Levy, personal, insurance, and disability relief to reduce your PAYE liability and consequently avoid overpayment.
• Use payroll software: Payroll software organizes employee details like salaries, statutory deductions, and PAYE computations to simplify your PAYE taxes. With such a system, all you need is to import the data into your Return Form as a CSV file.
• Consult a tax expert: Managing your organization or business is the most important role. Hiring a tax consultant lets you focus on the core business, leaving the experts to handle your PAYE returns.

Wrapping Up

Filing PAYE returns in Kenya is done by the employer via the iTax service platform. Follow our step-by-step guide to accurately file your returns and make payments. If you need professional assistance, our team at Gichuri & Partners will handle all your PAYE affairs so that you can focus on building your business or running your organization. Contact us for a free consultation.