File & Pay

What is PAYE?

PAYE is a method of collecting tax from individuals,both Resident and Non-resident, in gainful employment.

Gains or Profits includes wages, casual wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered.

 

Who is eligible for PAYE registration?

Any person who makes pays emoluments to an employee(s) is required to register for the PAYE obligation, upon which the person is required to:

  • Deduct tax from the employee(s) emoluments
  • Remit the tax deducted to the Kenya Revenue Authority

 

As an employer you are required to deduct PAYE from your employees' salaries and wages at the prevailing rates and remit the same to KRA on or before the 9th of the following month.

 

PAYE is chargeable to persons of employment income of Kshs. 24,000 and above per month. 

Non Cash Benefits Chargeable to Tax

Gains or profits from employment that are not paid in cash are chargeable to tax. Such gains or benefits include:

  • Where an employee is provided with a motor vehicle by his employer i.e. car benefit
  • Provision of housing by the employer
  • Loans at interest rates that are lower than the prevailing market rate
  • Household utilities – including telephone, electricity, water, security, domestic expenses in excess of the allowable limit of Kshs 3,000 per month.
  • Pension contribution paid by a tax exempt employer to an unregistered scheme.
  • Pension contribution paid by an employer to a registered or unregistered scheme in excess of the allowable amount of Kshs 20,000 or Kshs 240,00 per year.

What incomes are not chargeable to PAYE?

  • Meals provided by the employer up to a maximum of Ksh 4,000 per month or Kshs. 48,000 per year.
  • Night-out of Kshs. 2,000 per day
  • Amounts that are mere reimbursement of expenses e.g. subsistence allowance on official duty (per diems) or mileage allowance are not considered taxable pay.
  • Medical Cover by employer
  • In the case of non-Kenyan citizens who are in Kenya solely to serve the employer, expenditure on passages between Kenya and any place outside Kenya borne by the employer.
  • Pension contribution made by an employer, who is a person chargeable to tax, to a registered or unregistered scheme that is within the allowable limit of Ksh 20,000 per month or Ksh 240,000 per year.
  • Pension contribution made by a tax exempt employer to a registered scheme that is within the allowable limit of Ksh 20,000 per month or Ksh 240,000 per year. 
  • An amount paid by an employer as gratuity or similar payment in respect of employment or services rendered, which is paid into a registered pension scheme:
  • Education fees of employee's dependants or relatives paid from income which has already been taxed in the hands of the employer;

Allowable deductions

These are the amounts deducted from an employee’s emoluments in order to arrive at the amount which will be subjected to tax

Mortgage Interest Deduction

Interest paid on an amount borrowed from the first five financial institutions specified in the fourth Schedule of the Income Tax Act, either for the purchase or improvement of premises occupied for residential purposes is deductible against employment income, up to a maximum of Kshs 300,000/- per annum.

Pension contributions by an employee to a registered pension fund

The allowable deduction is limited to a maximum of Ksh 20,000 per month.

 

Tax Reliefs

Personal Relief

Personal Relief is granted to resident individuals.

It is meant to lighten the tax burden on the taxpayer.

It is currently set at Kshs 2,400 per month or Kshs 28,800 per year.

 

Insurance Relief

Insurance relief is granted to an employee who has paid insurance premiums for life or health or education polices for himself, his wife or child.

Relief is given at 15% of premiums paid up to a maximum of Kshs 60,000 per annum.

For education and health, the policy should have a maturity period of at least 10 years.

From 1st January 2022, contributions to National Hospital Insurance Fund (NHIF) qualify for insurance relief.

How is PAYE Calculated?

PAYE is computed as shown below:

Individual Tax Bands and Rates

The following tax rates shall apply to individual employment income with effect from 1st January 2021. The first return under the new rate shall be due by the 9th Feb 2021.

Tax Bands Annual Monthly Rates
On the first Shs. 288,000 Shs. 24,000 10%
On the next Shs.100,000 Shs. 8,333 25%
On all income in excess of Shs. 388,000 Shs. 32,332 30%
Personal relief of Kshs. 28,800 per annum (Kshs. 2,400 per month)

 

On pensions the new tax rates are:                                            

Pension Tax Bands   Annual Tax Rates
Any amount in excess of tax free amounts:  
On first 400,000 10%
On next 400,000 15%
On next 400,000 20%
On next 400,000 25%
On any amount in excess of Kshs 1,600,000 30%

                             

For example:

             

Rates Effective - 01.01.2021           

Gross Income from Employment

115,000

Less allowable Deductions

 

Mortgage Interest

15000

Pension Contribution by Employee

5,000

Taxable Pay

95,000

First

24,000*10% =2,400

Next

8,333*25% =2,083.25

Next

 

Above

(95,000-32333)

62,667*30%=18800

Total tax = 2400+2083.25+18800 = 23283,25

Less

Monthly Personal Relief

2400

Insurance Relief

0

Tax Payable

20,883.25

 

You can also use the PAYE Calculator to determine Tax Payable.     

        

How do I file for PAYE?

PAYE returns are submitted online via iTax

If you have no PAYE to declare, you are required to submit a NIL return.

 

How do I pay for PAYE?

After filing the return online, you are required to generate a payment slip via iTax which you will present at any of the KRA appointed banks to pay the tax due.

 

You can make payments via Mpesa.

Use the KRA Pay bill number 572572.

The Account Number is the Payment Registration number quoted at the top right corner of the generated payment slip.

 

What is the penalty for late filing and paying?

Date: Return should be filed and tax payable on or before the 9th of the following month.

Penalty on late filing: Whichever is higher between, 25% of the tax due or Kshs. 10,000.

Penalty on late payment: 5% of the tax due and a late payment of 1% per month on the unpaid tax until the tax is paid in full.

 

Emerging Issues

  • Distinction between an employee and consultant
  • Non inclusion of taxable benefits

 

Filing PAYE

Is your income solely from employment?

Watch our tutorial on how to file Income Tax Returns from employment income only.

PAYE Calculator

Find out how much is your net pay after income taxes.