Showing VAT on an invoice when not registered
Why a Kenyan business that is not VAT-registered should not show VAT on its invoices, the risks for its customers, and the settings to check.
By Achekam · · 4 min read · For Running a business businesses in Kenya
It is an easy mistake to make. A new business downloads an invoice template, or copies one from a former employer, and it has a VAT line built in. Or a customer's procurement system insists on a VAT figure, so the supplier adds one. Months later, the business realises it has been showing VAT on its invoices without ever being registered for it.
KRA has addressed this directly, and the Finance Act 2026 summary puts the rule in a single sentence. This article explains why showing VAT without registration is a problem, what it does to the customers who pay those invoices, how to start putting it right, and the settings in Achekam that decide what your documents say.
The Finance Act 2026 rule on invoices showing VAT
KRA's summary of the Finance Act 2026 says an invoice showing VAT should only be issued for a taxable supply. KRA's page, Finance Act 2026: what it means for you, states the rule among the Act's VAT changes, and is the page to quote if a customer or a colleague pushes back.
The rule is short, but it changes the conversation. A VAT line on an invoice is no longer something to add because a customer asked for it, or because the template had one. It has to reflect a real taxable supply.
Only registered persons charge and pay VAT
KRA's guidance draws the boundary plainly: income tax is a compulsory obligation, while VAT is paid only by those who are registered for VAT. A business that is not registered has no VAT obligation on its PIN, files no VAT return and pays no VAT over to KRA.
Kenya has two VAT rates, according to KRA: 16%, the general rate, on taxable goods and services other than zero-rated supplies, and 0% on the supplies listed in the Second Schedule to the VAT Act, 2013. Exempt supplies, listed in the First Schedule, are not taxable supplies at all. None of that machinery applies to a business outside VAT registration. So a "16% VAT" line on an unregistered business's invoice describes a tax the business is not accounting for.
The problem it creates for your customers
Look at it from the buyer's side. A VAT-registered customer receives your invoice, sees VAT on it, pays it and expects to claim it as input tax. But the VAT on your invoice is not VAT you have declared to KRA, because you have no VAT registration to declare it under. The customer would be claiming tax that never entered the system.
KRA is strict about what counts as a valid invoice in other respects too. It says an invoice without the supplier's PIN is not a valid tax invoice and is not allowed for tax deduction. A customer's finance team that checks invoices carefully will treat yours with suspicion once they notice the mismatch, and the relationship suffers. What an electronic tax invoice must show is covered in what a Kenyan electronic tax invoice must show.
For your own business, the money collected as "VAT" is the more pressing issue. It was paid to you as tax, and you are holding it.
Fixing invoices already issued
Do not try to fix this quietly by changing figures on old documents. Instead:
- List every invoice that showed VAT while the business was not registered.
- Total the amounts shown as VAT, customer by customer.
- Take the list to your accountant or tax adviser and agree how to correct it, including what to do with the amounts collected.
- Agree a short, factual message to affected customers before anyone calls them.
- Fix the template and settings, below, so no new invoice repeats the error.
If the business is in fact large enough to need registration, or would benefit from it, the answer may be to register rather than simply to remove VAT; see registering for VAT below the Kenyan threshold.
How Achekam titles documents, and the gap in its VAT check
In Achekam, a business enters its VAT registration number in Settings under Firm Profile. Documents made by Achekam's server print it, and are titled Tax Invoice only when a VAT number is set. An unregistered business that leaves the field empty gets documents that do not call themselves tax invoices.
Each invoice line carries a tax code: standard, zero-rated, exempt, out of scope or reverse charge. Only standard lines carry VAT.
Two limits need stating plainly. First, Achekam does not check whether the business is VAT-registered before charging VAT on its documents. If an unregistered business picks the standard code, VAT appears. Second, there is a current defect: the invoice PDF downloaded or e-mailed from the invoice screen is always headed TAX INVOICE and cites the South African VAT Act, whatever the business's country or VAT number. The server's own template handles this correctly; the problem is in the PDF made in the browser. More on that in invoice PDFs with South African wording.
Settings to check today
- Firm Profile: is the VAT registration number field empty if you are not registered?
- Invoice lines: is anything set to the standard code that should not carry VAT?
- Templates: does any saved invoice or quote template have a standard-rated line built in?
- The invoice-screen PDF: what does the copy your customer receives actually say at the top?
- Customer requests: has anyone agreed to add VAT because a customer's system demanded it?
Run through the list now, before the next invoice goes out. It takes a few minutes and closes the gap between what your documents say and what your registration allows.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
