Mileage and night-out allowances in Kenyan payroll
Which mileage, travel and night-out payments are taxable for Kenyan employees, how KRA's AA Kenya rule works, and how to run claims through payroll.
By Achekam · · 4 min read · For Running a business businesses in Kenya
A sales representative drives her own car to customers across three counties. A technician spends nights in Nakuru and Eldoret commissioning equipment. The business pays both of them for the travel, and at the end of the month someone in payroll has to decide whether those payments go into taxable pay.
The answer depends on what each payment is, how it is calculated and how much it comes to. KRA's PAYE guidance gives specific rules for mileage and for nights away, and a general rule that catches everything else.
Mileage and the AA Kenya benchmark
KRA's PAYE FAQ says mileage reimbursements above AA Kenya rates are taxable on the employee, with effect from 1 July 2023.
That ties the tax treatment to an outside benchmark: the rates published by AA Kenya for the cost of running a vehicle. A business that reimburses employees for business kilometres at a rate it chose years ago should check that rate against AA Kenya's current figures. Where the business's rate is higher, KRA treats the reimbursement as taxable.
Two practical consequences follow:
- Keep the rate under review. AA Kenya's rates move with fuel and running costs. Note in your policy which AA Kenya rate you follow and when you last checked it.
- Reimburse kilometres, not round sums. A reimbursement worked out from a trip log at a stated rate per kilometre is the arrangement KRA's mileage rule describes. A round monthly sum is not, as the next section explains.
The night-out allowance
KRA's FAQ says a night-out allowance of KShs 2,000 per day is not chargeable to PAYE. In the same answer, KRA says medical cover provided by the employer is not chargeable either.
The FAQ's sentence covers that daily figure; it does not spell out how KRA treats a larger allowance. If your policy pays more than KShs 2,000 for a night away, ask KRA or your tax adviser how the excess should be treated before you leave it out of taxable pay. Check the figure on KRA's page each year, since amounts like this change.
Reimbursements compared with allowances
The label on a payslip does not decide the tax. KRA says taxable employment income includes all cash payments however described, such as wages, bonuses, commissions, leave pay and directors' fees, as well as the value of non-cash benefits exceeding KShs 5,000 per month.
"However described" is the key phrase. A fixed "transport allowance" paid every month, whatever travel the employee actually does, is a cash payment like any other under that wording. Calling it an allowance, a refund or a facilitation fee changes nothing.
Compare that with a mileage claim built from dated trips, distances and purposes, at a rate per kilometre that sits within AA Kenya's figures. That is the arrangement KRA's specific rule addresses.
Meals are a separate case. If the business provides meals to staff on the road, rather than paying them cash to buy their own, KRA says meals provided by the employer are not taxed up to KShs 5,000 per month. Keep the receipts for what the business provided. Other benefits in kind are covered in benefits in kind and PAYE.
Expense claims through Achekam self-service
In Achekam, a staff member whose login is linked to their payroll record can submit expense claims through self-service, for payroll to decide. An approved claim is repaid on the next pay run.
For mileage, that gives a clean trail. The employee submits the claim with the trip log attached; the approver checks the trips against the diary or job sheets; payroll approves it; and the repayment appears on the next payslip. Nobody has to retype figures from a paper form.
Allowances as payroll inputs
Achekam's pay runs, monthly, fortnightly or weekly, take each period's overtime, commission, allowances, reimbursements and unpaid leave as variable inputs.
Enter each payment as what it is: a reimbursement as a reimbursement, an allowance as an allowance. Then run a test payslip for one employee and check that each item lands where you expect in taxable pay before the full run is approved. Payslips must show each item clearly, as what a Kenyan pay statement must show explains, and the tax on taxable pay is worked out from the bands described in working out PAYE with the Kenyan tax bands.
Policy wording worth adopting
A short written travel policy prevents most arguments. Points to cover:
- Mileage. Business kilometres are reimbursed at a stated rate per kilometre that does not exceed AA Kenya's published rate; the rate is reviewed when AA Kenya updates its figures.
- Trip log. Each claim lists the date, start and end points, purpose and distance of every trip.
- Nights away. A night-out allowance is paid at a stated daily amount for nights away on business; any amount above KRA's tax-free figure is treated as taxable unless the business has confirmed otherwise.
- Timing. Claims are submitted within a set period after the trip, through self-service.
- Approval. The employee's line manager approves; nobody approves their own claim.
- Evidence. Receipts and logs are kept with the payroll records.
- Changes. Any change to a rate or allowance is announced in writing before the month it applies to, so that employees know what they will be paid and payroll knows what to enter.
A policy only helps if it is applied evenly. Review a sample of claims each quarter against the policy, and fix the policy, not just the claim, when the same question keeps coming up.
KRA's FAQ on PAYE and employee benefits covers mileage, allowances and non-cash pay, and is worth rereading whenever you change your travel policy.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
