Entering credit notes in a client's iTax VAT return
How credit notes go into a Kenyan client's iTax VAT return as negative lines, the six-month limit, and where credits from earlier months belong.
By Achekam · · 5 min read · For Accountants & audit firms in Kenya
A client returns a batch of goods, a customer disputes a price, an invoice went out with the wrong quantity. Each of these produces a credit note, and each credit note has to find its way into the next VAT return correctly. When it does not, the client either overpays VAT on a sale that was reversed or reduces its output tax with a document KRA will not accept.
The mechanics in iTax are simple once you know them. The traps lie in timing, in where the credit note was raised, and in confusing a credit note with a VAT credit carried from an earlier month. This guide is for the person in the firm who prepares a Kenyan client's VAT return and has to get those entries right.
A negative line that points at the original invoice
KRA says credit notes are entered in the iTax return as negative figures, quoting the invoice they relate to. Its FAQs on filing returns on iTax explain the downloadable return forms and where these entries go.
Two things follow. First, the credit note is not netted off against a new sale or left out quietly; it appears as its own line with a minus sign. Second, the reference matters. A negative line without the original invoice number gives KRA no way to tie the reduction to a sale that was declared, and gives your reviewer no way to check it either.
Worked through in words: a client invoiced a customer in March, declared the sale in its March return, and in May agreed a partial credit for damaged stock. The May return carries a negative line for the credited amount, quoting the March invoice number. The March return is not touched.
The six-month rule and the court exception
The VAT Act, as published on Kenya Law in its consolidated version dated 1 July 2026, allows a credit note to be issued only within six months after the relevant tax invoice. There is one exception: where the price is the subject of a commercial dispute in court, the credit note may be issued within thirty days after the court's determination.
KRA's own VAT page puts the general rule the same way. It says a tax invoice should be serially numbered and generated from eTIMS, that only one original invoice, credit note or debit note may be issued for a supply, and that a credit note is issued within six months after the relevant tax invoice.
For the preparer, the practical test is a date comparison. For every credit note in the period, check its date against the date of the invoice it quotes. Anything outside six months needs either evidence of a court determination and a date within thirty days of it, or a conversation with the client before the line goes into the return.
Raised from the same eTIMS solution as the invoice
KRA says each eTIMS solution has its own unique invoice number sequence, and a credit note can only be generated from the solution where the original invoice was raised. KRA adds that all invoices from the different solutions can be seen on the taxpayer portal, etims.kra.go.ke.
This catches clients that run more than one solution, for example one at a shop counter and another for head-office billing. A credit note cannot be raised from the head-office system against a counter invoice. When a client says a credit note "would not go through", ask which solution issued the original. The portal view of all invoices is the quickest way to find out.
Credits from earlier months are a different entry
Do not confuse a credit note with a VAT credit. KRA says VAT credits from a previous month go in the Tax Due worksheet of the VAT return, not in the sales lines.
A client in a credit position last month, perhaps because of a large purchase, carries that credit into this month's return through the Tax Due worksheet. A credit note issued this month reduces this month's sales through a negative line. Both reduce what the client pays, but they sit in different places, and putting one where the other belongs distorts the sales figure KRA compares with eTIMS data.
Client schedules in Achekam that carry credit notes
Achekam computes a client's Kenyan VAT return from the sales and purchase schedules the firm imports, because the client's own books are not linked to it. That makes the schedule the place where credit notes either appear correctly or go missing.
Ask the client for a sales schedule in which each credit note is its own line, with a negative value, its date and the number of the invoice it corrects. A schedule that already nets credits into sales has lost the information iTax wants. If the client's export cannot separate them, ask for a separate credit note listing for the period and reconcile the two before you import.
Where the client keeps its own books on Achekam, its system enforces part of this discipline at the source: a credit note is issued from the invoice it corrects, in full or for chosen lines, and posted to the ledger, and there is no credit note without an invoice. That makes the link to the original invoice easy to report, although those books still are not linked to the firm's return, so the schedule is still exported and brought in.
For the wider method, see preparing client VAT from schedules.
What the reviewer checks before upload
A short list, applied to every return that contains credit notes:
- Every credit note appears as a negative line, quoting the original invoice number.
- Each quoted invoice was declared in an earlier return or in this one.
- No credit note is dated more than six months after its invoice, unless the file holds the court determination and the credit note falls within thirty days of it.
- Each credit note came from the same eTIMS solution as its invoice.
- Credits brought forward from last month are in the Tax Due worksheet, not in sales.
- The net sales figure agrees with the client's eTIMS sales for the period after credit notes.
| Item | Where it goes in iTax | What supports it |
|---|---|---|
| Credit note this month | Negative sales line quoting the invoice | Credit note and original invoice |
| VAT credit from last month | Tax Due worksheet | Last month's return |
| Credit note after a court case | Negative line, within thirty days of the ruling | The court determination |
Getting the habit right
Most credit note errors start with the schedule, not the return. Agree with each VAT client how credit notes will be listed, and keep that agreement on file. If a client has very many sales lines as well, the row limits in VAT returns for clients with very many sales are worth reading next, and the input side of the same timing question is covered in the six-month window for input tax.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
