Turnover tax and consulting fees in Kenya
Why a small Kenyan consultancy cannot put its professional fee income under turnover tax, and which tax rules apply to those fees instead.
By Achekam · · 5 min read · For Consulting businesses in Kenya
A management consultant in Nairobi leaves a corporate job, sets up on her own and, in the first year, bills well inside the turnover tax band. A friend who runs a hardware shop tells her turnover tax is the simple option: one small percentage of sales, no accounts to argue over, no annual return. It sounds ideal for a one-person practice.
It is also, for most of her income, not available. Kenya's turnover tax has a specific list of income it does not cover, and fees for advice sit squarely on it. This article sets out what KRA says about turnover tax and professional fees, what applies instead, and how a consultancy can keep its fee income clear in the books.
Who turnover tax is for
KRA says turnover tax applies to resident persons and businesses whose gross turnover is more than Kshs 1,000,000 but does not exceed, and is not expected to exceed, Kshs 25,000,000 in a year of income. It is charged under section 12C of the Income Tax Act (Cap 470) and does not apply to non-resident taxpayers.
Those figures are as KRA gives them at the time of writing. KRA's turnover tax page sets out who it applies to, the current rate, what it excludes and how to file, and is the place to confirm the band before relying on it.
The band is what makes turnover tax look attractive to a small practice. The exclusions are what matter.
The incomes it leaves out
KRA says turnover tax does not apply to:
- rental income;
- management, professional or training fees;
- income subject to a final withholding tax, such as qualifying dividends or qualifying interest.
For a consultancy, the middle item covers nearly everything it bills. Advisory work, management consulting, professional services and training courses are the core of the business, and KRA places that income outside turnover tax regardless of how small the practice is. Being inside the turnover band does not change that.
A final tax on gross sales, or the normal rules
To see why the distinction matters, compare the two regimes as KRA describes them.
| Turnover tax | Normal income tax rules | |
|---|---|---|
| What is taxed | Gross sales | Taxable income under the Income Tax Act |
| Expenses | None deductible | Allowed under the Act's rules |
| End-of-year return on that income | Not filed | Filed |
| Records KRA mentions | Daily records of gross sales and purchases | Full books supporting the return |
KRA says turnover tax is a final tax charged on gross sales, no expenses are deductible, and the taxpayer does not file an end-of-year income tax return on the income subject to it.
Since professional fees are excluded, a consultancy's fee income falls under the normal provisions of the Income Tax Act. That means keeping proper books of fees and expenses through the year and filing a return, with the help of a tax adviser if the practice does not have one in-house.
Electing out, and practices with mixed income
KRA says a person eligible for turnover tax may elect, by notice in writing to the Commissioner, not to be taxed under turnover tax, in which case the other provisions of the Income Tax Act apply.
That option matters mainly to businesses with a mix of income. Picture a training consultancy that also sells printed workbooks and stationery to the organisations it trains. The training fees are excluded from turnover tax, but the product sales may not be. Whether the product side should sit under turnover tax, or whether the business should elect to have all its income taxed under the normal rules, is a decision to take with a tax adviser, looking at the business's own figures. What a mixed business cannot do is move its professional fees into turnover tax.
Withholding by clients on professional fees
The other rule a Kenyan consultancy meets early is withholding tax. KRA lists withholding tax on management, professional and training fees at 5% for residents and 20% for non-residents, and on contractual payments at 3% for residents and 20% for non-residents, at the time of writing.
In practice, a client that withholds pays the consultancy less than the invoice and accounts to KRA for the difference. Your books then need to show the full fee as income, the cash received, and the tax withheld, with the client's withholding certificate kept on file. In Achekam, when a customer pays net of withholding tax, the receipt screens cannot yet settle the withheld part of the invoice, so the balance needs separate handling; fees paid net of withholding tax explains the steps. For the same rule from the paying side, see withholding tax on supplier payments in Kenya.
Reading the year's fee income in Achekam
Whatever regime applies, the starting point is a clean figure for fees earned in the year, separated from any other income.
Management accounts in Achekam show an income statement for a chosen period beside the period before, and a balance sheet at period end, both added up from the business's own journals and exportable as PDF or CSV. Keep professional fees, training fees and any product sales in separate income accounts so the split is visible without further work. The year-to-date preset starts on 1 January rather than your own year start, so select your year of income as the period if it begins in another month.
On the tax side, Achekam computes Kenyan corporation tax, instalment tax, VAT, withholding tax, turnover tax, capital gains tax and stamp duty once its rules are approved. Every Kenyan tax figure in Achekam's rule book was seeded as under review, and nothing is computed from a figure until an Achekam platform administrator approves it. Until then, the books supply the figures and you or your adviser work out the tax.
A practice weighing turnover tax for a different kind of business can compare the reasoning in turnover tax or VAT for a Kenyan fitness business. For a consultancy, the next step is simpler: set up separate income accounts for fees and anything else you sell, and confirm with your tax adviser which return your fee income belongs on.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
