Declaring side income on top of a salary
How a salaried Kenyan with freelance, consulting, online or farming income declares it to KRA, which return to use and what records to keep.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Plenty of salaried Kenyans earn something on the side. An accountant who prepares books for two small shops at weekends. An engineer who consults for a former client. A teacher with a poultry project, or a designer selling work online. PAYE comes off the salary every month, so it is easy to assume the tax side is already handled.
It is not. KRA expects side income to be declared, and declaring it changes which return you file. This article explains what counts, which form to use, what certificates and invoices to collect, and how to keep the side business's figures straight through the year.
What counts as additional income
KRA says employees with additional income, such as freelance, consultancy, online services or farming, must declare it together with their employment income in the annual return. It is one return covering both, not a separate return for the side business.
That includes income that arrives irregularly or informally: a few consulting days paid by M-Pesa, sales through an online platform, or the proceeds of a harvest. If it is income and it is not your salary, it belongs in the return.
KRA also says every person with a KRA PIN that has an income tax obligation must file an annual return, and must file a nil return in a year with no income. A side business that made nothing this year still needs the return filed.
Which return form to use
Most employees file the auto-populated employment return, where KRA fills in the salary and PAYE figures from the employer's records. Side income takes you off that route. KRA says a taxpayer must file the Excel IT1 return instead of the auto-populated employment return if they have:
- a withholding tax certificate;
- income other than employment;
- an employer whose PAYE was not remitted through iTax.
So the moment you earn side income, plan on the Excel IT1 return. It takes longer to complete than the auto-populated version, so start earlier than you are used to.
KRA's file my returns page explains who must file, which returns apply to employees with other income, and how filing works on iTax.
Withholding certificates from clients
If your side income is from consulting or professional work for businesses, some clients will withhold tax from what they pay you. KRA says that once the payer remits that tax, a withholding tax certificate generated on iTax is sent automatically to the payee, and the payee claims it when filing the annual return.
Keep a list of every client who paid you, the gross amount and the tax withheld. At year-end, check that a certificate has arrived for each. A missing certificate means a credit you cannot claim; chasing a missing withholding certificate explains what to do.
Expenses need eTIMS invoices
Side businesses have costs: software, a laptop, transport, feed for the chickens. KRA says that from 1 January 2024 a business expense can only be claimed if it is supported by an electronic tax invoice.
In practice, that means asking suppliers for an eTIMS invoice showing your PIN whenever you buy something for the side business. A cash receipt from a shop without eTIMS will not support the deduction.
There is a sales side too. KRA says taxpayers who earn income other than employment income must be registered on TIMS or eTIMS before KRA will issue a Tax Compliance Certificate. If you rely on a compliance certificate, for a tender or a job application, the side income brings eTIMS with it.
Keeping the side business's books in Achekam
The return is only as good as the figures you bring to it. Keeping the side business's income and costs in their own books, separate from your personal spending, makes the IT1 a matter of copying totals rather than reconstructing a year.
In Achekam, a business has its own double-entry ledger with a standard chart of accounts, and accounts can be added, renamed or switched off. A consultant can keep a fees account, a withholding-tax-receivable account and a few expense accounts, and nothing else.
Invoices write themselves into those books. An invoice is created as a draft and, once issued, takes the next number in its sequence and posts to the ledger as debtors, sales and any output VAT. The income figure for the return is then the total of what you invoiced, and the debtors list shows who still owes you.
Achekam does not file Kenyan returns. You, or whoever has the KRA filing permission, file on iTax and upload the acknowledgement, and a different person verifies it before the return counts as filed.
Year-end steps
- Total the side income for the year from your invoices and any other receipts.
- Total the expenses you can support with eTIMS invoices, and set aside those you cannot.
- Collect your P9 from your employer and every withholding certificate from clients.
- Complete the Excel IT1 with both employment and side income.
- File on iTax and keep the acknowledgement with your records.
Watch the date. KRA says that from 1 January 2027 individual taxpayers, including the self-employed, must file by the last day of the fourth month after the year of income, which for individuals means 30 April. Until then, check the current deadline for your year on iTax.
If the side work grows into a business in its own right, see taxes for sole proprietors. If you also changed jobs during the year, filing after working for two employers covers that.
This month, open a separate account or ledger for the side income and start keeping every invoice and certificate. Next year's return starts there.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
