“Pay As You Earn” (PAYE), as a method of tax deduction from employee’s salaries or wages applies to all income from any office or employment. It applies to weekly wages, monthly salaries, annual salaries, bonuses, commissions…e.t.c. Pretty much every single coin earned in this country within employment is liable to tax!
So as part of our two cents to Kenyan start-ups/ SMEs on workers, is that you have to do PAYE for your fixed employees and/or Withholding tax for any consultants (refer to post on Howto do Withholding tax on iTax) who are assisting you briefly – everyone “working” on your start-up is one or the other.
This post is part of our continued coverage of how to use the iTax system (refer to post, An introduction to iTax). Since we have declared there is no way around it, the best way we can handle it is by doing it right so as to avoid getting into any trouble.
a) The Commissioner may impose a penalty if an employer fails;-
– to deduct tax upon payment of emoluments to an employee
– to account for tax deducted (on or before the 9th of the month)
– to supply the Commissioner with a certificate prescribed under PAYE Rules.
The penalty is at the rate of 25% of the amount of tax involved or Kshs. 10,000, whichever is greater.
b) Penalty on Unpaid Tax
A penalty of 20% will be levied on PAYE tax remaining unpaid after due date.
c) Interest on Unpaid Tax
A late payment interest of 2% per month or part thereof shall be charged on amount of PAYE tax, including the penalty remaining unpaid for more than one month after the due date until the full amount is paid.
Step 1: Download the PAYE excel sheet from iTax (similar to the one from the old tax-payer software/ ITMS).
The PAYE excel sheet that you need to download is found under the “Returns” menu item. You have to pretend that you are doing an actual return to actually get the required files.
So, go to Returns >> File Returns >> Income tax – PAYE >> Download File.
The PAYE spreadsheet is available in both Excel format and Open Document Format (for Open Office). However, when we tested it the ODF format file we found that it was not working at all! So that seems that right now, the only way is to buy Microsoft Excel (not cheap) and use the excel version. Also for the smoothest operation we recommend that you do this on a Windows machine.
Step 2: Fill out the details of the excel sheet and generate the output – zip file.
The PAYE excel sheet has various tabs and you need to fill out all the relevant ones. When you are done, validate the spreadsheet – if it has any errors, the validation will let you know otherwise it will prompt you to generate a zip file that you will upload onto iTax.
Save the zip file on your machine where you can easily access it for uploading.
Step 3: Upload the zip file onto iTax.
Using your company PIN and iTax password, log onto your iTax account then under “Returns” on the to menu item, select “File Return”.
This will take you to the “e-Returns” page. The type of “e-Return” and “Taxpayer PIN” will already have been filled out for you so proceed to select the “Tax Obligation”. In this case, it is the “Income Tax – PAYE” obligation.
Fill out the “Income tax – PAYE form” by selecting the “Return Period From”, the “Return Period To” will automatically be filled out as the system only expects you to do a return for one month at a time.
Click the upload button to upload the zip file onto iTax. Only click the Add File button if there is more than one file you want to upload, otherwise, proceed to check the Terms and Conditions and “Submit” the form.
If your uploaded file was correctly filled out, the system will successfully submit it and give you a “Returns Receipt”. Otherwise, you will get an error message telling you what you had done wrong.
If you get an error message, simply go back and correct the PAYE spreadsheet then validate and save it a new. You do not need to use the “File Amended Return” menu item as technically, you had not successfully submitted the first time. Repeat the process and you will be fine.
The “‘Returns Receipt” is in the form of a download link that you can click and download for your filing. Note, you are not DONE with the process…all you have done is successfully submitted the Income Tax – PAYE form.
Step 4: Generate payment slip for the just submitted PAYE liability.
What now needs to happen is that you need to generate a payment slip for the tax obligation. The payment slip is what you will use to make a payment for this liability at the bank.
Proceed to click the Payment button.
A lot of the details on the e-Payment Registration form will already be filled out, proceed and fill what isn’t. That should be as indicated in the image below.
Confirm the “Liability Details” as this indicates what you are meant to pay. When all is good, select that liability entry and click the “Add” button.
The “Add” button from above adds the liability details to the “Payment Details”. This should then give you the total that you are meant to pay (there could be more then one liability that you are paying for).
Proceed to select the “Mode of Payment”; Cheque, Cash or RTGS and finally select the “Receiving Bank” – this should be the bank where you intend to make your payment from. Chances are, it is the bank that you bank with as a company. “Submit” the payment details.
A successful submission gives you back a “Payment Slip”‘ as indicated below. Click the download link to access it.
Step 5: Pay the PAYE at your local bank
Final step is to print the “Payment Slip” in 2 copies and take both to your local bank with a cheque for the amount indicated on the payment slip.
One of those copies will be kept by the bank as an indication of your payment while the other one will be stamped and given back to you as your receipt for your own books. This is a very important document as it’s actually shows that you have paid your liability. In case the bank has an issue with their systems and miss to register your payment, you can always fall back to this document as evidence for the payment.
iTax also sends you a confirmation email when you have made a payment and you can always check your “General Ledger” on iTax for verification of the payment entry.