Howto do withholding tax on iTax

The new KRA iTax system has come with its challenges but it has greatly improved some of the taxpayer obligations that we have to undergo every month.

One such procedure is how to do your Withholding tax reporting and how to make the payment. Refer to this post and see how it used to be done manually then you will surely appreciate how iTax is handling it now.

Checklist

Below are some of the things you need to have done so that you can be able successfully do your Withholding tax reporting on iTax;

  1. Updated your tax payer obligations on ITMS to include Withholding tax
  2. Registered your company on iTax (refer to post)
  3. The tax PIN of Withholdee
  4. 5 minutes in preparation time and 10-30 minutes queuing time

Motivation

The payer (Agent) of the income mentioned is responsible for deducting and remitting the tax to the Commissioner on or before the 20th of the month following the period of deduction.

The consequences of Non – compliance by the Agent :-

(i) Tax which should have been recovered from the income of the payee, will be recovered from the income of the payer (Agent).

(ii) Any penalties and interest incurred on the above will now be borne by the Agent.

In other words, if you don’t withhold tax from your suppliers and remit it to KRA, then you risk having to pay their tax should they “forget” to declare everything themselves.

Procedure

On the KRA website, click on the huge iTax banner that will redirect you to the iTax login page. Using your company PIN Number and password, log into the system.

Proceed to the “Payments” tab then select “Payment registration” – Note: Withholding tax does not exist as a ‘Return’ and you will not find it by clicking on the “Returns” tab.

The logic here is that withholding tax is tax that you are paying on their behalf of someone else, not your own that you have to file – hence you go directly to payment.

Withholding_Tax_Payment_Registration

The system will then show you the “e-Payment registration form” with your company details already filled out. Proceed to fill out the “Tax Head” where you will click the drop down menu and select “Income Tax”. It is an income tax as you as the company are reporting someone else’s tax on their income.

The “Tax Sub Head” should then be “(0105) Income Tax – Withholding”.

Withholding_e-payment_form

Proceed to the next section where you need to select the “Nature of Transaction” from the drop down menu. All the available transactions have a different tax percentage so you need to be sure which one your supplier belongs to.

(For the purpose of this example, we are going to use a Consultant earning above 24,000KES/Month.)

Proceed to fill out the Withholdee’s PIN number and the system will fill out the rest of the details for you, ie, their full names, address and email.

Finally fill out the “Gross Amount” that you are paying them and again, the system does the rest for you.

Withholding_Nature_of_Transaction

Click the “Add” button so that that transaction is added to the list of transactions that you have/ want to have. You can continue adding new transaction lines if you have more than one supplier you are withholding for and are preparing their report.

Finally proceed to select “Mode of Payment” and the “Receiving Bank Name”, which is the bank where you will make your payment (here, we would suggest to select the smaller banks with shorter lines so as to save yourself some queuing time).

Withholding_Receiving_Bank

Click submit and you are more or less done!!

The system will submit your withholding details for that month and give you back a ‘download link’ where you can download your withholding tax “Payment Slip”. A copy is sent to your email address and your supplier also automatically receives their Withholding tax certificate.

You should then print the payment slip in 2 copies and take to the bank you selected to make your payment.

Withholding_Payment_Slip

Highlights

Before iTax With iTax
30 minutes in preparation time and at least 3 hours in queuing time. 5 minutes in preparation time and 10-30 minutes queuing time
Preparing a withholding tax certificate to the supplier Certificate automatically sent to the supplier.

My two cents: Everyone should simply try using iTax for their returns as it cannot get any easier than that!! Kudos to KRA on this one…

Company registration on KRA’s iTax

Following the recent KRA developments, KRA have issued a notice informing the public about their new tax administration system. The system is meant to offer efficient and effective taxpayer service delivery and we have all been advised to file our returns through the online platform.

As of the 1st March 2014, KRA will not accept any manual tax returns and all taxpayers will be expected to use iTax for filling their returns.

Kindly note that KRA will not accept nor issue receipts for manual returns of Domestic Tax Payments in any of its offices. All Domestic Tax Payments MUST be made through the Payment Gateway in any of the KRA agent banks listed on the KRA website.

iTax will eventually replace the old ITMS and the TSW taxpayer software (used for VAT returns) but for a period, KRA seems to be running both alongside each other.
We will cover the new iTax in detail as more and more features are enabled and as we learn more about how to use the system.

In this blog post we will guide you through registering your company on iTax as this is required for any usage of the system.

STEP 1. Confirm your Tax obligations (old system).

iTax will pull the information about which TAX obligations your company has from the old (ITMS) system, so the first thing to do is to verify that you have enabled the correct tax obligations.

It is especially important to remember the withholding tax obligation, as this one was never really required before – but you need it to do withholding tax going forward!

ITMS_tax_obligations

STEP 2. Register on iTax (iPage)

Click on the big iTax banner on KRA’s main website – it will take you directly to the login section of the new iTax.

iTax_Software_Login

You need to first register your PIN on the iTax software to be able to access the system. The above login page allows you to do that.

iTax_Registration
Click on the ‘Have PIN but not Registered Online?’ link.

iTax_Registration

Select ‘Non Individual’ for the company and proceed to fill our your company PIN number and your Business Registration Certificate Number.

iTax_Registration

The sections above allow you to update all you taxpayer information. Start from section A all through to section F confirming that all you details are correct, some might need to be updated but most will remain as they are. The iTax system more or less has picked all your information from the old ITMS system so there is little to make changes on.

iTax_Registration_Submit

Typically, you will not be able to submit your information if there were any mandatory fields left unanswered.

iTax_Registration_PIN_Cert

But once you are done and everything is up-to-date you will get this download link to access your new PIN certificate (Print it and hang it somewhere visible in your office).

 

STEP 3. First login / Change password

At this point you have received an email with the login and password that you can use to log into iTax. Two things worth noting here:

  1. Everyone is assigned the same inital password, so you should change it as soon as possible (kind of a security risk if you ask us).
  2. The first time login / change password page is broken – especially if you are using Linux or Mac OSX, more on this.

 

When you first login you will be presented with a form that asks you to change your password, but upon clicking the submit button you are very likely to see the error message “Please read the KRA Website Secure Password Policy Guidelines and mark it into checkbox”

iTax_problem_checkbox_error

 

Problem is you can not see/find the checkbox that you are supposed to check. How bad this problem is depends on your Browser and operating system.

Essentially the checkbox is visually located UNDER the Vision 2030 logo, and there is no way you can click on it.

iTax_impossible_button

There are a few possible solutions to this problem.

  • If you are familiar with webdevelopment you can use Firebug or a similar tool to “remove” the Vision 2030 logo.
  • In your browser settings you might be able to remove the showing of images all together.
  • In your browser settings you might be able to reduce the text-size – thereby making the checkbox move up from behind the logo.

The easiest solution however might be to use a Windows computer using Internet Explorer as a browser.

Using Windows 7 and Internet Explorer 11 we were able to see a tiny bit of the checkbox peeking up from under the Vision 2030 logo – just enough that you can actually click it.

iTax_checkbox_peeking_IE

Once you are successful in changing your password, you can login back into the iTax software to see the different things that you can be able to do using the electronic system.

iTax_Software

Take special care to look at the “returns” menu point – from where you will find sections for PAYE, VAT etc (depending on which tax obligations your company has enabled – see step 1).

For your own sake we highly recommend that you download the example spreadsheets and take a look at what you need to fill out before you can upload file a return – It is quite significant the amount of information you need to fill out.

 

The blog post (like all our blog posts) will be updated as we learn more…

 

Employee PIN, NHIF & NSSF reg.

This blog post describes what procedures you need your employees to follow before they are fully registered. For your company to be fully compliant you need all your employees to go through these procedures.

Personal Identification Number (PIN)

PIN_Certificate

Checklist

  • National I.D number
  • One or both parents’ ID numbers

Motivation

PIN is a statutory requirement under Section 123 of Income Tax Act (Cap 470 Laws of Kenya).

It applies to every person who has income chargeable to tax under the Act or any person whom the Commissioner may so require to have it.

Section 132(7) provides that any person who, when required by the Commissioner, fails to comply with provisions of this section shall be liable to a default penalty of two thousands shillings for every omission, e.g. if an employer fails to disclose his employee’s PINs, he will be liable to default penalty stated above for each of the employees.

Procedure

To register for PAYE, you first need to register for a Personal Identification Number (PIN)

“The Personal Identification Number (PIN) identifies a person for purposes of transacting business with Kenya Revenue Authority, other Government agencies and service providers.”

Visit the KRA Online Service portal and click NEW TAXPAYER to register for your PIN certificate.

NB: Under tax obligations on the registration form select the option for ‘Income Tax Individual (IT1).

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National Hospital Insurance Fund (NHIF)

Checklist

  • Original and copy of National I.D (including spouse if applicable).
  • Copy of Employer Appointment/Introduction Letter (letter acknowledging you as an employee of that company if employed).
  • Colored passport photo (including spouse & dependents if applicable)
  • Original & copies of Birth Certificate(s) for dependents

Motivation

NHIF targets salaried or self-employed people whose total income is more than Kshs. 1,000 per month or Kshs. 12,000 per year.

For those employees in the formal sector, it is compulsory to be a member. For those in the informal sector and retirees, membership is open and voluntary.

NHIF provides comprehensive medical cover in majority of over 400 accredited Government facilities, Mission health providers and some private health providers across the country.

NHIF_Building

Procedure

Download the NHIF_Member_Registration_Form from the NHIF website.

Fill out all the details on the application form as precisely as possible.

Print out the application form and the supporting documents and take these to the NHIF headquarters.

If you have pre-filled all the documents, hand them over at the employee registration desk.

Afterward – NHIF are supposed to register you and send your NHIF card with an inspecting officer to your office. Since this will never happen, after a while, visit the NHIF office with your ID to collect your NHIF membership card.

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National Social Security Fund (NSSF)

Checklist

Manual registration

  • Original National I.D.
  • Copy of Employer Appointment/Introduction Letter (letter acknowledging you as an employee of that company if employed).

Online Registration

  • Scanned copy of National I.D.
  • KRA PIN Number
  • Employer name and NSSF number

Motivation

All employers must register with NSSF. Any employer who fails to register with the fund or fails to register their workers within 21 days of employment is guilty of an offense and liable to prosecution in a Court of Law. Please contact your nearest NSSF office immediately, if your employer is not registered with NSSF. NSSF Enforcement Officers will take the necessary steps to ensure that your employer registers with NSSF.

Procedure

NSSF_Hill_Branch

Manual registration – visit NSSF office nearest you with the documents on the checklist and join the registration queue. Registration officer will use the details on you ID and your fingerprints to register you and you will be issued with your NSSF membership card at the end of the process.

Online registration – visit the NSSF online registration form on the NSSF website. Using the documents on the checklist, fill out all the information as required.

Once you have successfully registered, NSSF will contact you through the email address or phone number that you provided with your NSSF Member Registration Details.

Nairobi business permit renewal

City_hall

Checklist

  • 1x a copy of the original previous business permit.
  • 1x a copy of ID or passport or PIN certificate.
  • 1x a copy of certificate of registration of business or incorporation certificate for company.

Motivation

Any person carrying out business must obtain a business permit by the 31st March of current trading year or may be guilty or an offense.

Late payments attract a penalty of 3.00% per month compounded from the due date.

Procedure

Visit the City Council Licensing office – City Hall Annex 1st floor, on or before the 31st of March of the current trading year with all the required documents.

Talk to any registration officer at the front desk and tell them that you want to renew your business permit.

They will then give you a single business permit registration form. Using your old permit, fill the same details on the new form.

You will then be directed to the data capture counter where they will retrieve your data using the forms you give them and issue you with a Single_business_payment_bill. The bill will quote the amount you are going to pay for the permit – mostly it is the same amount you had paid for the previous permit.

Do not make any payments at this counter or at any counter at the licensing office for that matter. All payments are made at the Cash Office at the main City Hall Plaza.

City_council_cash_office

At the Cash Office you will be required to be in one of the queues for you to be attended to. At the front of the queue the cashier will take your money and the invoice, register the payment and then issue you with a receipt.

Very important – Take the receipt and make a copy of it (there are a number of photocopiers around the city council offices. Visit one of them and make the copy). Without this copy the registration officers at the licensing office will send you back as they cannot proceed without two copies of the payment.

Take the receipt and the copy back to the licensing office with the rest of your renewal forms. The licensing officer will take the renewal forms and put them in a stack of other registrations.

He/she will then give you the copy of the receipt to serve as your temporary business permit. He will also write at the top the validity of the temporary permit. So be sure not to exceed the duration.

Afterwards – After a week or two, go to the licensing office with your single business permit bill and your ID/passport. Visit the counter written dispatch and hand the officer your bill and ID/passport.

He/she will search through the pile of certificates for yours. If ready they will give you and record your name and ID/passport details in order to know who picked the certificate.

How to pay for Withholding Tax

Checklist

Withholding_Tax

Motivation

The payer (Agent) of the income mentioned is responsible for deducting and remitting the tax to the Commissioner on or before the 20th of the month following the period of deduction.

The consequences of Non – compliance by the Agent :-

(i) Tax which should have been recovered from the income of the payee, will be recovered from the income of the payer (Agent).

(ii) Any penalties and interest incurred on the above will now be borne by the Agent.

In other words, if you don’t withhold tax from your supplier payments and remit it to KRA, then you risk having to pay their tax should they “forget” to declare everything themselves.

Procedure

Download the KRA paying-in-slip and the KRA payment-slip from the KRA website or use your favorite accounting package to generate them for you ;-)

Fill these out as precisely as possible. Finding the correct TAX code can be a bit difficult but is best found in the withholding tax pamphlet. See excerpt below.

Witholding_tax_codes
Overview of withholding tax codes.

Withholding tax code 90 is the code you use with W8F. This is what you use if you are paying for professional services for example freelance consultants.

If paying via cheque, write a cheque for the amount due, indicating your phone number at the back of the cheque and carry all of your documentation to KRA. Otherwise, carry the cash amount due if paying cash.

Ask for directions to the payments section but most payments are made in the second (counting from the side of entry) tower of the Times Towers.

The withholding tax payment section is up one flight of stairs (to be exact, up the escalator).

Join the rest of the people at the queue. Depending on the date that you have visited KRA, queuing time could range between 20 minutes to 3 hours on average. If you go on the 20th, simply dedicate your entire day to the process!

Give the cashier the filled out documents and the money/cheque.

The cashier will keep the paying-in-slip but stamp the payment slips and give them back to you for your files. He/She will then process your payment and give you an official KRA receipt.

Our Two Cents: Avoid making your Withholding tax payments any day near the deadline. The total man hours wasted in the queue are more valuable than the amount you will probably be paying!

KRA End of Year PAYE Returns

If you are a tax income company (which every registered company should be) you are required by law to submit quite a number of documentation and payments to KRA at specific times in the year.

KRA-Tax-return

For the purpose of this blog post, I will only concentrate on PAYE – a method of collecting tax at source from individuals in gainful employment.

The employer should deduct tax according to the prevailing rates of tax from their employees salary or wages on each payday for a month and then remit the tax to the Paymaster – General through the laid down procedure on or before the 9th day of the following month.

There are 2 methods of submitting PAYE. You can either do it manually using a P11 (P.A.Y.E_credit_slip) document (also downloadable from the KRA website) or do it online through the KRA online portal.
Submitting online is by far the easier option as it also reduces the amount of overhead you have to endure. Online submission only requires you to pay at the bank and you are done with PAYE for that month.
The manual method requires you to pay at the bank and then go back to KRA to confirm the submission.

Both of these methods in the past needed to be back up by a P.A.Y.E. End of Year Return submitted to the relevant Domestic Taxes Office on or before 28TH FEBRUARY.

Note that they were not easy to fill out documents so you can imagine the amount of work and time I put in this year to make sure I was ready for the 28th of February!

By the 27th, I was ready. I gathered up all my documentation and visited KRA first thing in the morning in order to avoid that outrageous queue that is normally outside Times Towers.

To my utter shock and dismay, I was told and I quote:

Madam, we no longer take any of these documents! There is a completely new method of submitting end of year returns and that is by doing quarterly returns using a P10D!

Here is the deal, If you attend a tax-payer seminar (we did) you are told that they got rid of all those documents however they seem to have forgotten to update their website to reflect this, which if you ask me, is their official communication portal!! But that’s just me…

Anyway, let’s leave the noise of another blog post. Here is how you REALLY do KRA ‘end of year returns/quarterly returns’.

Procedure

1. If you submit your returns online, you are safe :) No more documentation is needed from you by KRA as they already have all your employees information.
2. If you submit manually using the P11:

  • After every 3 months (each quarter) download a P10D (EMPLOYERS_QUARTERLY_RETURN), also available on KRA website and fill out all your employees information as required.
  • Make copies of the P11s that you have submitted to KRA during that quarter.
  • Print the P10D in DUPLICATE and take them together with the photostats of the P11s to any KRA office around you.
  • The receiving officer should take all of them, stamp them and give you back one of the P10Ds for your files.

You would imagine that with how much less work there is to submitting this, they would be shouting at the top of the roofs about it! Seems it’s too much work for them as opposed to having to explain it to the millions of Kenyans who must have shown up at KRA in February!

Well, there you have it. It is as simple as that. My two-cents, do PAYE online!! And I might just have the system for you to use that will make it 20 times easier than it already is…..The Uhasibu payroll system!