Beyond the Filing Deadline: Key Tax Considerations for SMEs Ahead of the 2025 Income Tax Return

 

As the 30 June filing deadline approaches, attention naturally turns to the preparation and submission of annual income tax returns. For many SMEs, the immediate priority is ensuring that returns are filed within the prescribed timelines. Equally important, however, is the quality of the information being submitted and the extent to which it is supported by the underlying records of the business.

The annual income tax return is the culmination of a year's worth of transactions, commercial decisions, and tax positions. The filing process therefore provides an opportunity for businesses to revisit key areas of their tax affairs, reconcile financial records, and confirm that the positions reflected in the return are consistent with both statutory requirements and the underlying commercial realities of the business.

As businesses prepare their 2025 Income Tax Returns, several areas merit particular attention.

Supporting Business Expenditure

The deductibility of expenditure depends not only on its business purpose but also on the availability of adequate supporting documentation. Businesses should review whether expenditure recorded during the year is supported by invoices, receipts, contracts, and payment records. A thorough review of supporting documentation contributes to the integrity of the tax position ultimately reflected in the return.

Going forward, businesses are increasingly expected to maintain eTIMS-aligned digital audit trails that support transactions recorded in their books.

For the 2025 income tax filing, particular attention should be given to non-eTIMS transactions, where the CSV of recorded purchases and expenses plays an important reconciliation role. A structured review involves matching the details captured in the CSV against supplier invoices, payment records, and internal accounting entries to confirm completeness and accuracy. This process helps ensure that all recorded expenditure is properly supported and that any variances are identified and addressed as part of the filing preparation.

Alignment of eTIMS and Accounting Records

The continued integration of eTIMS into Kenya's tax compliance framework places greater emphasis on consistency across a taxpayer's records. Reviewing accounting records alongside VAT returns and eTIMS data helps ensure that transactions have been captured consistently and that any variances are identified and understood before filing.

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Withholding Tax Credits

Withholding tax remains an important component of many taxpayers' final income tax positions. Prior to filing, businesses should confirm that available credits have been accurately captured and that the amounts correspond with supporting certificates and records maintained by the Kenya Revenue Authority.

Particular attention should be given to the period in which the credits arise. Only withholding tax credits relating to the relevant income year should be reflected in the return, supported by documentation that clearly links the deductions to transactions recognized within that same period. This alignment helps ensure consistency between the tax return and the underlying tax records

Business and Personal Expenditure

For owner-managed businesses, the distinction between business and personal expenditure continues to be an important consideration. A review of expense classifications can help ensure that costs claimed for tax purposes are appropriately connected to the income-generating activities of the business.

Import-Related Costs

Businesses engaged in importation should review the treatment of customs duty, import VAT, freight, insurance, and other associated costs. The treatment adopted for these expenditures may influence both VAT and income tax outcomes and should therefore be considered as part of the broader filing review process.

A key aspect of this review involves reconciling import VAT recorded in the VAT returns with the data reflected in the ICMS system. This alignment helps ensure that import-related transactions are consistently captured across customs records and tax filings, supporting completeness and accuracy in the final tax position.

If you'd like to talk to a tax and finance expert, you can click here to book a free consultation appointment

Related-Party Transactions

They should be captured correctly according to the relevant laws governing related-party dealings, including applicable tax and transfer pricing provisions. Transactions involving shareholders, directors, related entities, or other connected persons should be clearly documented and supported by a commercial rationale that reflects their underlying substance.

This approach helps ensure that related-party arrangements are appropriately reflected in the tax return and aligned with statutory requirements.

Payroll Reconciliations

The preparation of annual income tax returns also provides an opportunity to confirm consistency between payroll records and statutory remittances, including PAYE, Housing Levy, and Social Health Authority (SHA) contributions. Timely reconciliations help support accuracy across multiple compliance obligations.

For businesses with casual or daily wage workers, consistency is strengthened through structured payroll capture at the point of payment. Maintaining clear attendance records, standardized wage schedules, and timely payroll entries ensures that casual wages are fully reflected in PAYE submissions where applicable, while also supporting accurate expense recognition in the financial statements.

Allowing Adequate Time for Review

A structured filing process benefits from sufficient time for review, reconciliation, and validation of supporting information. Businesses that commence this exercise early are generally better positioned to address outstanding matters and complete the filing process efficiently.

Conclusion

The filing season brings together a business’s financial records, reconciliations, and tax positions into a single reported outcome. It is at this point that the strength of underlying record-keeping, consistency in reporting, and discipline in tax management becomes most evident.

A structured and deliberate approach to the filing process reinforces sound tax governance and results in a more complete and reliable tax position. Businesses that apply this discipline are better positioned in how their affairs are presented and understood.

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