When a customer withholds 2% VAT from your payment
How a Kenyan supplier handles VAT withheld at 2% by a customer: checking the agent, filing the return, possible refunds and matching the short receipt.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Your invoice to a large customer showed the price plus VAT. The payment that came back is a little short, and the remittance advice mentions "WHVAT". Nothing is wrong with the customer's arithmetic: it has withheld part of the VAT on your invoice and paid it to KRA on your behalf.
For the supplier, that small deduction creates three tasks. You need to be sure the customer was entitled to withhold, you need to account for it correctly in your VAT return, and you need your own books to show the invoice as properly settled rather than as a debt the customer still owes. This article takes each in turn.
What withholding VAT is and which supplies it skips
KRA says withholding VAT is charged at 2% of the value of taxable supplies, with effect from 7 November 2019, and that no VAT is withheld on exempt or zero-rated supplies.
So the deduction should only ever appear on the standard-rated part of your invoice. If you sell a mix, for example zero-rated goods alongside standard-rated delivery or installation, check that the customer has withheld only on the standard-rated lines. A customer that withheld on the whole invoice has taken too much, and you should raise it with them before the next payment rather than absorb it.
KRA's Value Added Tax page explains withholding VAT and the supplier's continuing duty to file, and is the reference to send a customer's finance team if there is any disagreement about what can be withheld.
Checking that the customer is an appointed agent
Only authorised agents should be withholding VAT. KRA says its Tax Agent Checker identifies authorised KRA withholding VAT agents, and its PIN Checker confirms whether a PIN is genuine.
Run the check the first time a customer withholds, and keep a note of the result with the customer's details. If the customer does not appear as an authorised agent, ask them on what basis they are withholding. The agent's side of the rules, including the penalties it faces, is set out in duties of an appointed withholding VAT agent.
Your VAT return still carries the full sale
The withholding does not take your sale out of VAT. KRA says a supplier whose VAT has been withheld must still file its VAT return and account for the balance.
A worked example in words: a supplier invoices a standard-rated service with VAT on top. The customer, an authorised agent, pays the price and the VAT less the 2% withholding, and pays the withheld amount to KRA. In the supplier's VAT return, the sale and its full output VAT are declared as usual, and the supplier accounts for the balance after the VAT already withheld. What the supplier pays with the return is reduced by what the customer paid on its behalf.
That only works if the withholding is credited to your PIN. Check KRA's records against the remittance advices each month, and follow up any withholding that has not appeared.
Refunds when withholding leaves you with excess input tax
Some suppliers find that, once withholding is taken into account, they have more VAT credit than VAT to pay, period after period. The VAT Act, as published on Kenya Law, deals with this. Its general rule carries excess input tax forward to the next period, but the Commissioner refunds an excess arising from tax withheld by appointed withholding agents, or from zero-rated supplies, if the claim is lodged within twelve months from the date the tax became due and payable.
KRA's guidance puts the same rule this way: a taxpayer whose input tax exceeds output tax because of VAT withheld by appointed agents can apply for a refund within 12 months. Otherwise, the excess is carried forward. The application process and what KRA checks are covered in claiming a VAT refund for excess input tax.
Recording the short receipt in Achekam today
In Achekam, a customer payment is recorded against one invoice or spread across several of the customer's invoices. A part payment leaves an invoice part-paid, and anything extra is held on the customer's account. Receipts can be re-allocated, and administrators can refund or reverse them.
There is a current limit to state plainly: when a customer pays net of withholding tax, the receipt screens cannot settle the withheld part of the invoice. Record the amount actually received; the 2% stays open on the invoice. Agree with your accountant how that open amount is cleared once the withholding is confirmed on KRA's side, so your receivables do not show the customer as owing VAT it has already paid to KRA. Consultants dealing with net payments more generally will find more in withholding tax on net payments for consultants.
A monthly reconciliation of withheld VAT
Once a month, before preparing the VAT return:
- List every receipt in the period that came in short because of withholding VAT.
- Check each deduction was on standard-rated lines only, at 2% of their value.
- Confirm each customer appears in KRA's Tax Agent Checker.
- Match each deduction to KRA's record of withholding credited to your PIN.
- Account for the balance in your VAT return, after the withholding credited.
- Clear the matched open amounts on the invoices, as agreed with your accountant.
- If credits regularly exceed what you owe, consider whether a refund claim is due.
Start with the customer whose payments you see most often; once its withholding matches cleanly, the rest of the routine is easier to set up.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
