A KRA review is easier to handle when the records already explain the business. Trouble often starts when invoices, bank activity, contracts and tax returns sit in separate places, with no clear way to connect them.
For Kenyan SMEs, audit readiness is not about expecting the worst. It is about having a routine that makes it possible to explain a transaction when KRA asks. This article provides general information, not advice on a particular tax position.
Start with the records behind each return
Before filing a return, a business should be able to trace the figures back to the underlying records. That may include sales and supplier invoices, bank statements, payment evidence, payroll records, delivery notes and contracts.
The key question is not only whether a return was filed. It is also whether the business can show how its reported income, expenses, VAT and deductions were calculated.
KRA has announced that it will validate income and expenses declared in 2025 returns against information from TIMS/eTIMS, withholding-income-tax records and Customs import data from 1 January 2026. Regular reconciliation is, therefore, more useful than trying to rebuild a file after a query arrives. See KRA’s 2026 validation notice.
Make eTIMS checks part of normal purchasing
An expense is not fully documented simply because a supplier has sent an invoice. KRA says that a business expense generally needs a valid electronic tax invoice, subject to the exclusions in law.
A sensible internal check is to compare the purchase order, delivery or service evidence, supplier invoice, payment record and eTIMS details before approving payment. The documents should identify the same supplier, amount, goods or services, and transaction period.
KRA also says that eTIMS requirements apply to people engaged in business, including many who are not VAT registered. See KRA’s eTIMS guidance.
Keep one file for each material transaction
Finance, procurement and operations often hold different parts of the same transaction. That may be workable day to day, but it slows down any compliance review.
For a material sale, purchase or service engagement, keep one accessible file containing:
- the agreement, quotation or purchase order;
- invoices and payment evidence;
- delivery notes, completion certificates or other proof of performance; and
- correspondence approving a variation, credit note or change in scope.
A clean file helps beyond tax compliance. It gives management a clearer basis for dealing with supplier questions, delayed payments and disputes about what was delivered.
Reconcile before KRA asks
A monthly review is usually more effective than a large annual clean-up. Finance teams should compare sales and purchase records with bank activity, eTIMS information, payroll records and filed returns.
Where the records do not match, the first task is to understand why. A difference may be legitimate, but it should be documented rather than ignored. Timing differences, credit notes, deposits, imports or exempt transactions can all require separate treatment.
The aim is not to force every figure into one format. It is to make sure that each difference has a factual explanation and supporting documents.
Treat a request for information as a managed task
If KRA asks for documents or explanations, assign one person to coordinate the response. Record the request, deadline, material supplied and any outstanding questions.
The response should be accurate, complete and limited to what has been requested. Do not create explanations after the fact that the existing records cannot support. Where an issue is unclear or material, seek qualified advice before responding.
KRA notes that taxpayers may be asked for documents and information before an assessment or demand is issued.
Keep compliance ready for business opportunities
Tax readiness also affects commercial opportunities. A Tax Compliance Certificate can be required for government tenders and other transactions. KRA says that applicants must meet the relevant filing, payment, outstanding-liability, VAT and eTIMS/TIMS requirements. See KRA’s Tax Compliance Certificate guidance.
For an SME, this is a reminder to review compliance before a tender deadline or major contract, not after.
A calmer way to face an audit
Good audit preparation is not about collecting more paperwork for its own sake. It is about keeping reliable evidence that explains how the business earned income, incurred costs and met its tax obligations.
When records are organised, reviews happen regularly and responsibilities are clear, a KRA request is more likely to be a manageable business process than a scramble.
Mathew Kiragu is a tax professional at Gichuri & Partners. He holds an Advanced Diploma in Tax Administration from the Kenya School of Revenue Administration (KESRA). mathew@gichuripartners.com
