Purchases where input VAT cannot be claimed
Which purchases a Kenyan business cannot claim input VAT on, from client entertainment to private cars and mixed-use items, and how to code those bills.
By Achekam · · 5 min read · For Running a business businesses in Kenya
A VAT-registered business in Kenya pays VAT on nearly everything it buys, and the natural instinct is to claim all of it back. KRA does not allow that. Some purchases carry VAT that can never come back as input tax, however genuine the invoice and however tidy the records.
Getting this wrong is expensive in a quiet way. An overclaimed return looks fine on the day it is filed. The trouble surfaces when KRA reviews the claim, and the business then repays the VAT with penalties and interest on top.
This article walks through the categories KRA blocks, the grey area of items used partly for business, and how to record blocked VAT so it never reaches the return.
The purchase has to serve the business
KRA's guidance on input tax deduction starts with a plain rule: input tax cannot be claimed on purchases that are not related to the business. Household furniture bought through the company account, a family holiday on the business card, a child's school fees paid from the trading account: the VAT on each of these stays where it fell.
The risk usually comes from habit rather than intent. An owner pays personal bills from the business account because it is convenient, the bookkeeper captures every supplier invoice in the month, and private VAT drifts into the claim. Stop the drift at capture. When a bill arrives, the first question is whether the business, rather than a person, consumed what was bought.
Purchases tied to exempt sales
The second category catches businesses that sell both taxable and exempt goods or services. KRA explains that exempt supplies, those listed in the First Schedule to the VAT Act, 2013, are not taxable supplies, and the input tax that relates to them is not deductible. Its input tax guidance repeats the point: no claim on purchases relating to exempt sales.
Zero-rated sales are treated differently. KRA describes two VAT rates: 16% on taxable supplies generally and 0% on the supplies listed in the Second Schedule. Zero-rated sales remain taxable supplies, so the VAT on purchases used to make them can still be claimed. Exempt sales sit outside the system, and the VAT on what you buy to make them becomes a cost.
Where one purchase serves both kinds of sale, such as rent on premises where you trade in both, the VAT has to be split. KRA warns that its auto-populated VAT return will not do this for you: when a business has both taxable and exempt sales, the taxpayer must disallow invoices or use the apportionment fields in the tax due sheet. Leave the pre-filled figures untouched and you may be claiming VAT the law does not allow. The splitting method is covered in apportioning input tax, and the exempt list in VAT-exempt supplies in Kenya.
Restricted items: cars and entertainment
KRA names restricted items on which input tax cannot be claimed, giving passenger cars for personal use and entertainment as examples, unless they are provided in the ordinary course of business.
That closing phrase matters. The restriction is aimed at the company that buys a saloon car for its managing director or takes clients out to dinner. It is not obviously aimed at a business whose trade is the very thing being restricted. If your business sits near that line, such as a car hire operator or an events caterer, read KRA's wording closely and confirm the treatment with your tax adviser before you claim.
Items used partly for business
Plenty of purchases are neither wholly business nor wholly private: a phone, a laptop, a pick-up used for deliveries on weekdays and family errands at weekends. KRA's rule is that only the business-use portion of the VAT can be claimed.
KRA does not give a formula in that guidance, so the business has to choose a fair basis and keep evidence for it, for instance a trip log for a vehicle or a short usage note for equipment. Write the basis down once, apply it every month and revisit it when the use changes. A basis recorded at the time carries far more weight than one assembled after KRA asks.
Suppliers on the VAT Special Table
One more block depends on the seller rather than the purchase. KRA says traders cannot claim input tax on purchases from a taxpayer on the VAT Special Table, and iTax rejects such entries with the message "This PIN is not liable to input tax deduction". When that message appears, take the line out of the claim and treat the VAT as part of the cost.
Coding bills in Achekam
In Achekam a business records supplier bills line by line with VAT. A bill raised without a purchase order waits for approval before it posts, which gives the approver a natural moment to ask whether the purchase is blocked. Bills can then be paid in full or in parts from a chosen bank account.
There is a current limit Kenyan users need to know. Supplier bills and purchase orders do not yet use a Kenyan business's own VAT rate: they offer 15% or 0% and default to 15%. For a blocked purchase that is workable: enter the full amount paid, VAT included, as the cost of the line and choose 0%, so no input VAT is posted. For purchases you can claim, the 15% option does not match Kenya's rate, so keep the input VAT workings for the return beside the books and agree the approach with whoever prepares the return.
On the sales side, once the Kenya pack is activated each invoice line carries a tax code (standard, zero-rated, exempt, out of scope or reverse charge), and only standard lines carry VAT. Coding exempt sales properly gives you the figures you need when a shared cost has to be split.
Worked examples by type of purchase
| Purchase | Input VAT claimable? | Reason |
|---|---|---|
| Groceries for the owner's home, paid from the business account | No | Not related to the business |
| Materials used only to make exempt supplies | No | Relates to exempt sales |
| A saloon car for a director's private use | No | Restricted item |
| A dinner for clients at a restaurant | No | Entertainment, a restricted item |
| A laptop used at work and at home | Partly | Business-use portion only |
| Goods bought from a supplier on the VAT Special Table | No | iTax refuses the entry |
| Office stationery for a business making only standard-rated sales | Yes, with a valid invoice | Used for taxable supplies |
The last row carries a condition: a claimable purchase still needs an invoice that passes KRA's tests, which are set out in when you can claim input VAT.
A short check before each return
Before the monthly return goes in, run the purchase lines past four questions. Did the business consume it? Does it serve exempt sales, wholly or partly? Is it a car for personal use or entertainment? Is the supplier on the Special Table? Any "yes" means the VAT comes out of the claim or is reduced.
KRA's guide to VAT input tax deduction lists the restricted categories and the conditions a claim must meet. Read it once with your bookkeeper, agree how each recurring expense is treated, and the monthly check becomes a few minutes' work.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
