What the law actually requires you to keep
Before the management advice, the floor. These are obligations, not good practice.
Five years of tax records. The Tax Procedures Act requires businesses to retain tax records for at least five years from the end of the reporting period. In a KRA review, what you can prove matters more than what you declared, and a missing year is treated as a missing year.
Accounting records and annual financial statements, if you are a limited company. The Companies Act, 2015 requires every company to keep accounting records and to prepare financial statements for each financial year. That duty sits with the directors and does not depend on the company's size.
Daily sales and purchase records, if you are on turnover tax. KRA's turnover tax guidance sets the bar low on purpose: daily gross sales and daily purchases. Low is not none.
Electronic tax invoices, once you are big enough. KRA's turnover tax guidance states that businesses with turnover below KES 5 million are not required to install electronic tax invoicing. Above that, eTIMS applies and your invoices need to come through it.
If you are a sole trader below those thresholds, no statute tells you to produce a balance sheet. But you still have to file a return that someone could defend, and you still have to run the business. Those two needs point to the same set of records.
Getting set up: four decisions
1. Separate the business money from your own
This is the single change that makes everything else possible. One bank account and one mobile money line used only for the business. Pay yourself a fixed amount on a fixed date and treat that as a transaction, not as dipping in.
Mixing personal and business money is the most common reason a small business cannot produce accounts later. Every transaction then needs a judgement call about what it was, months after anyone remembers, and KRA has no reason to accept your reconstruction.
2. Keep four records, at minimum
| Record | What goes in it | Why it earns its place |
|---|---|---|
| Sales record | Every sale, dated, with the invoice or receipt number | It is the basis of your turnover tax, VAT and income tax |
| Purchases and expenses record | Every payment out, dated, with the supplier and the document | Expenses you cannot evidence are expenses you cannot claim |
| Cash and bank record | Every movement in the bank and in the till or M-PESA account | It is what you reconcile against, and it catches theft |
| Payroll record | Each employee's gross pay, deductions and net pay | It supports your monthly returns and the annual P9s |
If you hold stock, add a stock record. If you sell on credit, add a debtors list with dates — knowing who owes you and for how long is usually worth more to a small business than any other number.
3. Pick a system you will actually use
A well-kept spreadsheet beats accounting software nobody opens. A written cash book beats a spreadsheet nobody updates. Match the tool to the person doing the work, then upgrade when the business outgrows it.
As a rough guide: a cash book or spreadsheet is fine for a one-person business with few transactions. Once you have staff, stock or VAT, software that produces a proper trial balance saves more time than it costs. Once you have eTIMS obligations, choose something that handles them.
4. Record transactions weekly, not annually
The difference between a business that knows its numbers and one that does not is rarely sophistication. It is frequency. Thirty minutes every Friday is manageable. Nine months of receipts in a carrier bag in June is not, which is why the June reconstruction is where errors, missed deductions and panic come from.
Your monthly accounting checklist
Work through this in the first week of each month, for the month just ended. It takes a small business an hour or two once the habit is in place.
Record and reconcile
- ☐ Record every sale for the month, with its invoice or receipt number
- ☐ Record every expense, and file the supporting document
- ☐ Reconcile the bank statement to your records, line by line, to a nil difference
- ☐ Reconcile the M-PESA or till statement the same way
- ☐ Count stock, if you hold it, and note the value
Chase and pay
- ☐ List who owes you, and how long overdue
- ☐ Follow up anything past 30 days before it becomes 90
- ☐ List what you owe suppliers, and when it falls due
File and remit
- ☐ Run payroll and remit PAYE, NSSF, SHIF, the Housing Levy and NITA by the 9th
- ☐ File and pay VAT by the 20th, if registered
- ☐ File and pay turnover tax by the 20th, if registered
- ☐ Remit any withholding tax deducted, by the 20th
Read
- ☐ Look at the month's income and expenses against last month
- ☐ Check the cash balance against what falls due in the next 30 days
- ☐ Note anything that moved sharply, and find out why before the next month closes
That last group is the one owners skip, and the only one that changes decisions. Compliance tells you what you owe. Reading your numbers tells you whether the business works.
Reading your own numbers
Three statements come out of good records. Each answers a different question, and owners who only look at one usually look at the wrong one.
The income statement answers: did we make money this period? Sales, less what the sales cost, less the running costs.
The balance sheet answers: what does the business own and owe right now? Assets on one side, liabilities and the owner's stake on the other.
The cash flow statement answers: where did the money actually go? This is the one that explains a profitable month with an empty account.
A month in a printing business
| KES | |
|---|---|
| Sales | 850,000 |
| Materials and outwork | (430,000) |
| Gross profit | 420,000 |
| Rent | (90,000) |
| Salaries and statutory costs | (150,000) |
| Power, internet and transport | (45,000) |
| Other running costs | (20,000) |
| Net profit | 115,000 |
That is a net margin of about 13.5%, and three useful things fall out of it immediately.
First, materials eat just over half of every shilling of sales. A 5% rise in paper prices costs this business roughly KES 21,500 a month unless prices move with it.
Second, rent and salaries are fixed. Sales can fall about 27% before the business stops covering them — that is the cushion, and it is worth knowing the number rather than sensing it.
Third, the margin decides a tax question. At 13.5% on turnover of around KES 10 million a year, this business would pay less under turnover tax than under the normal regime. A business on 6% would not. Our guide to turnover tax works that comparison through.
Profitable and broke at the same time
Suppose KES 300,000 of that month's sales were on credit to corporate clients who pay in 60 days. The income statement still shows KES 115,000 of profit. The bank account shows a shortfall, because rent, salaries and PAYE were all paid in cash this month.
This is the most common cash trap for growing Kenyan SMEs, and no amount of selling fixes it. Only a debtors list, a collection habit and a view of what falls due next month will.
What your books are feeding
Every filing below draws on one of the records above. This is why bookkeeping that falls behind becomes a tax problem rather than an admin problem.
| Filing | Applies to | Draws on | Due |
|---|---|---|---|
| PAYE, NSSF, SHIF and NITA | Any business with employees | Payroll record | 9th of the following month |
| Affordable Housing Levy | Any business with employees | Payroll record | Within 9 working days of month end |
| VAT | Taxable supplies of KES 5 million a year or more | Sales and purchases records | 20th of the following month |
| Turnover tax | Registered businesses turning over KES 1m to KES 25m | Daily sales record | 20th of the following month |
| Withholding tax | Anyone paying amounts subject to withholding | Payments record | 20th of the following month |
| Instalment tax | Companies, and individuals with business income | Management accounts | 20th day of the 4th, 6th, 9th and 12th months of the accounting period |
| Annual income tax return, individuals | Sole traders, partners, the self-employed | Annual accounts | 30 April, from 1 January 2027 |
| Annual income tax return, companies | All companies | Financial statements | End of the sixth month after the year end |
| Annual return to the Business Registration Service | All companies | Company records | Annually, under the Companies Act, 2015 |
| Single business permit | Any business trading in a county | — | Annually, county by county |
Two lines deserve attention.
The individual deadline moved. The Finance Act 2026 brought individual and self-employed filing forward from 30 June to 30 April, with effect from 1 January 2027. That applies to the 2026 year of income onwards. If your routine was to start assembling records in May, it no longer works.
The company annual return is not a tax return. The annual return filed with the Business Registration Service confirms who owns and runs the company. It is separate from the income tax return, and missing it is a common and avoidable problem.
When to bring in an accountant
Plenty of small businesses manage their own records for years, and should. The signals that it is time for help are fairly consistent:
- You have employees, and payroll deductions have become a monthly calculation with four different bases
- You have crossed, or are about to cross, the KES 5 million VAT threshold
- You are choosing between turnover tax and the normal regime and cannot work out which is cheaper
- A bank, investor or tender requires financial statements
- Your company is approaching the size thresholds where a statutory audit applies
- You are behind on returns and want to know the exposure before KRA tells you
- You are spending evenings on the books instead of on the business
There is also a quieter signal: you have the records but cannot answer questions from them. Whether a product line makes money, whether a price rise would cover a cost increase, whether you can afford another hire — the records hold the answers, and someone has to read them out.
How Uwazi Consulting helps
We set up and maintain accounting records for small and growing businesses, prepare monthly management accounts and year-end financial statements, and handle the filings those records feed. Some clients hand us everything. Others keep their own books and bring us in monthly to review, reconcile and file.
If your records are behind, that is a normal place to start, and a more common one than you would expect.
We are based in Nairobi and work with businesses across Kenya. Contact us to talk through what your business actually needs — which, for some, is less than they assumed.
Related reading: bookkeeping versus accounting, statutory deductions for employers, and turnover tax.