Recovering VAT on invoices that were never paid
Why a credit note stops helping after six months, the longer bad-debt VAT refund period under Kenya's Finance Act 2026, and the evidence to keep.
By Achekam · · 5 min read · For Running a business businesses in Kenya
You delivered the goods, issued a proper VAT invoice through eTIMS and declared the VAT in that month's return. The customer never paid. Months go by, the phone calls stop being answered, and the debt looks lost. The sale hurts twice: once for the price, and again for the VAT you handed to KRA on money you never received.
Kenyan law recognises this. There is a route to claim back VAT on bad debts, and the Finance Act 2026 has made the window for it longer. But the route has a timetable, and the usual tool for reversing a sale, the credit note, runs out long before most debts are finally written off.
VAT declared on an unpaid sale
The existence of a bad-debt refund tells you the starting position. VAT declared on a sale is not undone simply because the customer fails to pay; the law provides a separate claim to get it back. Until that claim is made and accepted, the VAT you declared stays declared.
KRA also reminds businesses that an invoice showing VAT should only be issued for a taxable supply. That matters here because a bad-debt claim rests on the original invoice being right. If the invoice should never have carried VAT, the problem is a different one, and correcting it is not a bad-debt claim.
Why a credit note stops being the answer after six months
The natural instinct is to cancel the sale with a credit note. The VAT Act, as published on Kenya Law, limits that. It allows a credit note to be issued only within six months after the relevant tax invoice, or, where the price is the subject of a commercial dispute in court, within thirty days after the court's determination.
KRA's guidance says the same about timing, and adds two rules of its own: a tax invoice should be serially numbered and generated from eTIMS, and only one original invoice, credit note or debit note may be issued for a supply.
Put those together. A customer who stops paying in month two may still be promising payment in month five. By the time it is obvious the money is not coming, the six months have often passed and the credit note route has closed. A credit note is meant for genuine changes to a sale, such as returns or agreed price reductions within the window, not for debts that turned bad.
The bad-debt refund period after the Finance Act 2026
The Finance Act 2026 changes the timetable for the separate route. KRA says the Act extends the period for claiming a VAT refund on bad debts from two years to three years. KRA's summary of the Act, Finance Act 2026: what it means for you, sets out this change among the other VAT amendments, and is the page to read for the wording.
The summary does not set out every condition of a claim, so ask your tax adviser, or KRA, how the period is counted and what must be shown before you lodge one. For the Act's wider effect on businesses, see Finance Act 2026: changes for Kenyan businesses.
Evidence of your collection efforts
A refund claim on a bad debt asks KRA to accept that the money is genuinely lost. Whatever the precise conditions, a business that can show it tried to collect is in a far stronger position than one with nothing but an unpaid invoice. Keep:
- the eTIMS invoice and proof of delivery;
- every reminder and statement sent, with dates;
- notes of calls and any promises to pay;
- letters of demand from you or your lawyer;
- anything showing the customer has closed, cannot be found or cannot pay.
If the customer's PIN on the invoice was wrong, sort that out early, because a claim built on a flawed invoice is a weak one. The fix is covered in fixing an eTIMS invoice with the wrong buyer PIN.
Writing off the debt in Achekam with a partner's approval
Achekam keeps much of that collection trail for you. Credit control is on for new workspaces: once a day it e-mails overdue reminders and a monthly statement to customers with a balance, and records whether each e-mail went out. The default reminders go at 7, 14 and 30 days overdue with the invoice PDF attached, provided the workspace's e-mail settings are working. It never charges anyone; it only reminds.
Receivables are aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals, so a debt drifting into the oldest band is visible before it is forgotten.
When a debt is finally judged lost, it can be written off in Achekam once a partner approves. That deals with the debt in your books. It is not a VAT refund claim: the claim is made to KRA, with your adviser, using the evidence above.
One trap to avoid: Achekam lets an administrator void an issued invoice that has no payments or credits, which reverses its journal. Voiding is for an invoice issued in error. It is not a way to deal with a customer who simply did not pay, and it does nothing to the eTIMS invoice KRA already holds.
A debtor review routine
Once a month, with the aged receivables report in front of you:
- Look at every invoice moving past the 91-120 day band.
- Check the reminders went out and note any response.
- Decide, before six months pass from the invoice date, whether a credit note is genuinely appropriate for a price change or return.
- For debts that look lost, start a file with the evidence list above.
- Diarise the bad-debt refund period your adviser confirms applies.
- Write off approved bad debts in Achekam and pass the file to whoever prepares the VAT claim.
Bad debts are not the only reason a Kenyan business may be owed VAT; a refund of excess input tax follows different rules, set out in claiming a VAT refund for excess input tax. Start this month's review with the oldest debt on the list.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
