Many entrepreneurs usually get confused when it comes to taxation for their business. It is crucial you understand how it works to avoid getting penalized by KRA.
For sole proprietor business, you will require to make income tax return yearly (before every 30th June). If you are charging your clients VAT on your products or services then you must acquire VAT obligation & ETR machine.
Previously, the Kenya Revenue Authority used to issue VAT Certificates. But those days are long gone as KRA has been digitizing most of its operations.
What this means is that in order for you to acquire KRA VAT for sole proprietor business, you will need to apply for an online generated KRA PIN.
When you have acquired your KRA PIN online version, you will need to add VAT under Tax obligation. Please note that this process can’t be reversed or changed online. So make sure you know what you are doing.
Once you have enabled the VAT, you will need to make monthly VAT return before 20th of every month. If you fail or forget to do that, KRA will fine you Ksh. 10,000 for each month that you haven’t made your returns on time.
If your Sole Proprietor Business isn’t making any revenues then you are allowed to make nil returns. But make sure you don’t get used to making nil return even when your business is generating revenue because the taxman will catch-up with you and it won’t be business as usual.
However, if you already enabled the VAT under the Tax obligation but your business doesn’t need it at the moment, then you can write a letter to KRA offices and request them to disable your VAT obligation on your PIN in order to avoid being penalized Ksh. 10,000 every month for failure of not making monthly VAT returns.
We advise most Sole Proprietor to get an accountant for their business to make sure that book-keeping is in order.
If you don’t have your KRA PIN for Individual, then you need to apply for a new one before setting up VAT.