Your Q4 Action Plan: Preparing for a Smooth Kenyan Year-End Close

As the year draws to a close, every business in Kenya needs to prepare its books, tax returns, and reports in line with KRA and accounting standards.
Here’s a clear summary of what you must complete in the final quarter (Q4) before your financial year ends.

1. Confirm Your Financial Year-End and KRA Deadlines

Start by identifying your official year-end date (for most businesses, this is 31st December). Your tax and reporting deadlines revolve around this date.

Key deadlines under the Income Tax Act and KRA rules:

• 🗓️ Corporate tax return (IT2C) — must be filed within six (6) months after your financial year-end.

  Example: Year ending 31st Dec 2024 → file by 30th Jun 2025.

• 💰 Balance of Tax — any unpaid tax after instalments must be paid by the last day of the fourth month after year-end.

  Example: Year ending 31st Dec → pay by 30th Apr.

• 📆 Instalment Tax Payments — made on the 20th day of the 4th, 6th, 9th, and 12th months of your financial year via iTax.

  Example: 20th April, 20th June, 20th September, 20th December.
  (Agricultural businesses pay 75% in month 9 and 25% in month 12.)

These dates are legally enforced under the Income Tax Act (Cap 470) and KRA’s official tax calendar.

2. Ensure eTIMS Compliance for Deductible Expenses

KRA’s Electronic Tax Invoice Management System (eTIMS) is now mandatory for all businesses in Kenya.

Key requirements:

• From 1st September 2023, all businesses must issue electronic tax invoices through eTIMS.

• From 1st January 2024, any business expense without an eTIMS invoice is not deductible for tax, unless it falls under specific exceptions listed by KRA.

Action Steps:

1. ✅ Confirm that all your suppliers are registered on eTIMS.

2. 📊 Ensure your accounting software can integrate or upload invoices to eTIMS.

3. 🧾 Keep digital records of all sales and purchase invoices.

KRA — eTIMS System

3. Conduct a Physical Stock Count

All businesses holding inventory must perform a physical stock take before closing the year.

Why it matters:

Your closing stock affects your cost of sales, profit, and tax liability.

Action Steps:

• Count all stock items as of the last day of your financial year.

• Record and investigate any differences between the physical count and system quantities.

• Write off obsolete, damaged, or lost stock with proper approval.

• File signed stock count sheets as part of your audit documentation.

💡 Tip: A well-documented stock count helps during both audits and KRA reviews, especially if stock records are part of your eTIMS integration.

4. Review Accruals and Prepayments

To follow accounting principles correctly, all income and expenses must be matched to the correct period, not just when cash changes hands.

Accruals:

Record all expenses that have been incurred but not yet invoiced (e.g. utilities, bonuses, legal fees).

Prepayments:

Adjust prepaid expenses such as rent or insurance that relate to future periods.

Why it’s important:

Accruals and prepayments ensure financial statements reflect the true economic performance for the year, as required by IFRS and IFRS for SMEs (adopted in Kenya through ICPAK).

5. Review Debtors (Receivables) and Creditors (Payables)

A clean close requires verifying who owes you money — and whom you owe.

Debtors (Customers):

• Prepare an aged receivables report.

• Follow up overdue accounts and make provisions for doubtful debts.

• Obtain customer confirmations for major balances (recommended for audit support).

Creditors (Suppliers):

• Ensure all invoices received before year-end are posted.

• Accrue for goods and services received but not yet invoiced.

📘 Why it matters: Ensures your balance sheet is complete, and VAT/WHT are consistent with your eTIMS records.

6. Reconcile All KRA Tax Accounts

Before you close your financial year, it’s crucial to reconcile all your tax records with the information appearing in KRA’s iTax system. This helps you confirm that every tax payment, filing, and deduction has been properly captured and that there are no gaps that could trigger penalties or a KRA audit.

Here’s what to review for each major tax category:

a) Value Added Tax (VAT)

Start by comparing your VAT returns with your accounting records. Check that all sales invoices and purchase invoices included in your books have been correctly reported in the VAT returns. Every invoice should also be issued or received through eTIMS, as KRA now requires electronic tax invoices.
If there are any invoices missing from eTIMS or recorded incorrectly, correct them before the year ends. This ensures your input VAT and output VAT are accurate and reduces the risk of KRA raising queries on mismatched returns.

b) Pay As You Earn (PAYE)

Next, reconcile your payroll records with the PAYE payments you’ve submitted to KRA each month. Confirm that the total PAYE deducted from employees’ salaries matches what was actually paid on iTax.
If there were late payments, penalties, or interest, record them properly in your books. This reconciliation confirms that your staff tax obligations are fully settled and compliant with employment and tax laws.

c) Withholding Tax (WHT)

Review your WHT certificates issued by clients. These certificates show tax that was withheld from payments made to your business. Match each certificate against the corresponding entries in your accounting ledger to ensure every withholding has been recorded.
If any certificates are missing or contain errors, follow up with your clients to have them corrected. These documents are essential because you can claim credit for WHT when filing your annual tax return—missing certificates mean you might overpay tax.

d) Instalment Tax

Finally, verify that all instalment tax payments made throughout the year are reflected correctly in your accounts. Kenya’s tax system requires most companies to pay instalments on the 20th day of the 4th, 6th, 9th, and 12th months of the financial year.
Add up these instalments and compare the total with your year-end tax computation. If there’s a shortfall, make sure you pay the balance of tax by the end of the fourth month after your year-end (for example, by 30th April if your year ends on 31st December).

Doing these reconciliations helps you identify discrepancies early—before they become compliance issues—and ensures your final financial statements agree with what is on record at KRA. It also builds confidence for auditors, investors, and future tax reviews.

7. Review and Update Your Fixed Assets

Before finalizing your year-end accounts, take time to review and update your Fixed Asset Register (FAR). This document lists all the property, plant, and equipment your business owns — from computers and furniture to vehicles and buildings.

Here’s what to do:

• Update Additions and Disposals:

Record any assets purchased during the year, and remove any items that have been sold, scrapped, or written off. Supporting documents such as invoices and disposal receipts should be attached.

• Verify Depreciation:

Recalculate depreciation for each asset category based on your company’s accounting policy. Make sure it aligns with the Second Schedule of the Income Tax Act, which defines capital allowance rates acceptable by KRA.

• Physical Verification:

Carry out a physical check of major assets to confirm that they exist, are in use, and are in good condition. Note any missing or obsolete items and seek management approval for any necessary adjustments.

• Reconcile with the General Ledger:

The closing balances in your Fixed Asset Register must match what appears in your financial statements. Discrepancies should be corrected before the accounts are finalized.

This process ensures that your business reports its assets accurately, claims the correct depreciation deductions, and maintains full compliance with both IFRS standards and KRA regulations.

8. Prepare for the Year-End Audit

Whether your audit is mandatory or voluntary, preparing early saves time, cost, and stress. Auditors will look for evidence that your financial information is complete, accurate, and well-documented.

To prepare effectively:

• Reconcile All Accounts:

Go through every balance sheet account — including bank accounts, debtors, creditors, inventory, and fixed assets — and ensure they are fully reconciled.

• Gather Supporting Documents:

Organize invoices, receipts, bank statements, contracts, and payroll records. Keep them filed in both digital and hard-copy formats for easy access.

• Address Prior-Year Findings:

Review your previous audit report and confirm that all prior recommendations or adjustments have been resolved.

• Prepare Explanations:

For significant variances or unusual transactions, prepare management explanations ahead of time. This helps auditors understand your operations quickly and minimizes back-and-forth queries.

Proper preparation not only supports a smoother audit but also demonstrates professionalism and strengthens your business’s reputation for financial integrity.

9. Maintain and Archive Records (Tax Procedures Act, Section 23)

The Tax Procedures Act (2015) sets out clear rules for how long Kenyan taxpayers must keep their financial and tax records. Under Section 23, every taxpayer is required to retain accounting documents for at least five (5) years from the end of the reporting period to which they relate.

Here’s what that means in practice:

• Keep Comprehensive Documentation:

Maintain copies of invoices, receipts, bank statements, ledgers, contracts, payroll records, tax returns, and payment acknowledgments.

• Electronic and Physical Storage:

You may store these records electronically (e.g. in cloud storage or accounting software) or in physical files. Just make sure they can be easily accessed and printed upon request by KRA or your auditor.

• Extended Retention Periods:

If your business is under audit or dispute with KRA, keep all relevant documents until the case is fully resolved — even if it extends beyond five years.

Maintaining proper records supports transparency and helps prove your compliance if KRA conducts a tax review.

KRA — Tax Procedures Act (PDF)

10. File, Submit, and Sign Off

Once you’ve reconciled your taxes, verified your balances, and prepared your documentation, you’re ready to officially close the year.

Here’s how to complete the process correctly:

• Finalize Financial Statements:

Review your draft financial statements — income statement, balance sheet, and cash flow statement — to ensure accuracy and consistency. Management should sign them off before submission.

• File Your Corporate Tax Return (IT2C):

Log in to the KRA iTax portal and file your company’s tax return within six months after your year-end. Attach your audited financial statements if required.

• Pay the Balance of Tax:

Any remaining tax due (after instalments) must be paid by the last day of the fourth month after the end of your financial year. Timely payment prevents interest and penalties.

• Submit Other Statutory Returns:

Ensure all VAT, PAYE, and withholding tax returns have been filed and paid up to the end of the year.

• Archive Everything:

Once all filings and payments are complete, safely archive your records — both digital and physical — in line with Section 23 of the Tax Procedures Act.

Completing these final steps closes the financial year officially and keeps your business in full standing with KRA, auditors, and stakeholders.

Conclusion

Closing the financial year is more than just balancing your books — it’s about demonstrating accountability and compliance.

For Kenyan businesses, a proper year-end close means:

• Meeting every KRA tax deadline,

• Ensuring eTIMS compliance for all invoices,

• Reconciling taxes and ledgers accurately,

• Following IFRS for reliable reporting, and

• Keeping complete records for at least five years.

By handling these steps carefully, you safeguard your business from penalties, build trust with regulators and investors, and start the next year on a strong, compliant foundation.