Tax for Freelancers and Self-Employed People in Kenya: What You Owe KRA and How to Pay It

Employment has one built-in convenience that self-employment does not: someone else handles the tax paperwork every month. Your employer deducts PAYE, remits it to KRA, and by the time your salary hits your account, the government has already been paid. When you work for yourself, that system does not exist. You are the employer and the employee at the same time — and the tax office does not give extensions for people who forgot to budget for it.

This article covers what you owe, when you owe it, and how the system works in practice. None of it is complicated once you understand the structure.

The Same Tax Bands Apply

Self-employment income is taxed using the same PAYE bands as employment income. There is no separate "freelancer tax rate." Your taxable profit — gross income minus allowable business expenses — is run through the same progressive bands:

• Up to KES 24,000 per month (KES 288,000 per year): 10%
• KES 24,001 – KES 32,333 per month: 25%
• KES 32,334 – KES 500,000 per month: 30%
• KES 500,001 – KES 800,000 per month: 32.5%
• Above KES 800,000 per month: 35%

You also get the personal relief of KES 2,400 per month (KES 28,800 per year), which reduces the final tax figure. So if your taxable profit works out to KES 600,000 for the year, you apply the bands to that figure and subtract personal relief. The result is what you owe KRA.

The difference from employment is simply that no one deducts this automatically. You have to calculate it, set it aside, and pay it at the right time.

Instalment Tax: The Part Most Freelancers Don't Know About

Here is the detail that catches many self-employed people off guard. KRA does not only want your tax at the end of the year when you file your annual return. If your total tax liability for the year exceeds KES 40,000, you are required to pay in four instalments throughout the year.

The schedule is:

• 20 April: 25% of estimated annual tax
• 20 June: 25% of estimated annual tax
• 20 September: 25% of estimated annual tax
• 20 December: 25% of estimated annual tax

These dates are fixed and there is no grace period built in. If you miss them or underpay, KRA charges interest at 20% per annum on the shortfall. That is not a one-off penalty — it runs from the instalment due date until the tax is actually paid.

The instalment is based on your estimated annual tax liability. If this is your first year self-employed, you are estimating blind, which is uncomfortable but normal. Use your best projection of income for the year, calculate the tax on that, and pay accordingly. If you overestimate, you get a credit on your annual return. If you underestimate, you top up when you file — and pay the interest on the shortfall.

Instalment tax is paid on iTax under Returns → Instalment Tax. The payment goes to M-Pesa Paybill 572572 with your KRA PIN as the account number, same as any other KRA payment.

Withholding Tax: When Your Client Pays KRA on Your Behalf

If you provide services to a company or registered business — a corporate client, an agency, an NGO, a government body — they are legally required to withhold 5% of your fee and remit it directly to KRA. You receive the remaining 95%.

A concrete example: you invoice a client KES 100,000 for a consultancy project. The client pays you KES 95,000 and sends KES 5,000 to KRA under your PIN. You have received less cash, but KRA has received tax on your behalf.

This KES 5,000 is not lost. When you file your annual income tax return, you declare the full KES 100,000 as income, calculate the tax on your total annual profit, and then deduct the KES 5,000 (and any other WHT amounts) as a tax credit. If your total tax liability for the year is KES 30,000 and you have KES 20,000 in WHT credits, you only owe KES 10,000 more.

The practical implication: when a client says they will "withhold WHT," do not treat it as money lost. Factor it into your cash flow — your effective receipt is 95% of your invoice — and keep track of every WHT certificate your clients issue. You will need those certificates to claim the credit on your return. Request them as a matter of course whenever you complete a job.

Individual clients (people paying you out of personal funds, not a business account) are generally not required to withhold. The WHT obligation sits with companies and organizations, not private individuals.

Allowable Business Expenses

Tax is calculated on your profit, not your gross income. The difference is your allowable business expenses — the costs you incurred to generate that income. Reducing taxable profit is entirely legal and is the main tool self-employed people have to manage their tax bill.

Expenses that qualify:

• Rent for business premises: Office, studio, workshop, or coworking space. If you work from home, only the portion of rent attributable to a dedicated work area qualifies — not your entire rent.
• Employee costs: Salaries, wages, and NSSF contributions if you have staff.
• Utilities: Electricity, internet, and phone costs for business use. If your home internet is used for work, the business proportion is deductible.
• Equipment and machinery: Laptops, cameras, tools, and other equipment. These are typically subject to capital deduction rules — you do not deduct the full cost in year one, but depreciate it over time according to KRA's rates.
• Professional fees: Accountant fees, legal advice, and any consultant you paid to support the business.
• Motor vehicle expenses: Fuel, insurance, and maintenance for a vehicle used in the business. KRA expects a logbook — a record of business trips, dates, destinations, and distances — to support these claims. Without one, the deduction is difficult to defend in an audit.
• Marketing and advertising: Website costs, social media ads, print materials, listing fees.
• Business insurance: Premiums on policies that cover the business, not personal insurance.

What does not qualify:

• Personal food, clothing, or entertainment (unless it is a genuine client entertainment expense with a business connection and documentation)
• Fines and penalties — including KRA late payment penalties, ironically
• Capital expenditure deducted in full in year one (most equipment is depreciated, not expensed immediately)
• Your own salary drawn from the business — as a sole proprietor, your profit is your income; you cannot pay yourself a deductible salary

The rule KRA applies is that an expense must be wholly and exclusively incurred in producing business income. Mixed-use items (like a car used for both work and personal trips) require apportionment — only the business portion is deductible.

Annual Return: The IT1 Form

The annual income tax return for individuals is the IT1 form, filed on iTax. The deadline is 30 June each year, covering the prior year's income. So by 30 June 2026, you are declaring income earned between 1 January and 31 December 2025.

For self-employed individuals, the IT1 is not auto-populated the way it is for salaried employees whose employers submit PAYE data. You download the Excel IT1 workbook from iTax, fill in your gross income, list your allowable expenses, arrive at your taxable profit, and calculate the tax due. You then upload the completed file to iTax.

Any instalment tax you paid during the year, and any WHT deducted by clients, are credited against the final liability. If those credits exceed what you owe, KRA owes you a refund (in practice, most people carry the credit forward to offset the following year's liability).

If you owe a balance on top of the instalments already paid, it is due at the time of filing. Payment is via M-Pesa Paybill 572572.

VAT: When It Kicks In

If your annual business turnover exceeds KES 5,000,000, you are required to register for VAT with KRA. Once registered, you must charge clients an additional 16% VAT on your invoices and remit that VAT to KRA monthly.

This is a separate obligation from income tax and has its own filing requirements (monthly VAT returns on iTax). The KES 5 million threshold is based on turnover — total revenue, not profit. If you are approaching that figure, factor registration into your planning rather than crossing it without registering, which carries penalties.

Below KES 5 million in annual turnover, VAT registration is optional. Most freelancers and small consultants operate below this threshold and do not need to deal with VAT.

NSSF and Health Cover

NSSF contributions are not compulsory for the self-employed, but you can join voluntarily. The SHIF (formerly NHIF) contribution for health coverage is something worth maintaining regardless — illness without cover can be financially damaging in ways that dwarf any tax liability. As a self-employed individual, you pay SHIF directly rather than having it deducted through payroll.

Common Mistakes That Cost Money

Not keeping receipts. This is the most expensive mistake over time. If you cannot produce documentation for an expense, KRA can disallow it during an audit — which means higher taxable profit and more tax owed. A folder (physical or digital) for all business receipts, invoices, and M-Pesa confirmations is not optional. It is the foundation of your tax position.

Missing instalment deadlines. The 20% per annum interest on late instalments adds up quickly. If your annual tax bill is KES 200,000 and you miss the April instalment of KES 50,000 by six months, you owe KES 5,000 in interest just on that one payment. Set calendar reminders for all four dates.

Mixing business and personal money. Running everything through one account makes it nearly impossible to reconstruct your business income and expenses accurately at year end. Open a separate bank account for business transactions. It does not need to be a corporate account — a second personal account designated solely for business is sufficient. This single step will save significant time and potential errors at tax time.

Not registering for VAT after crossing KES 5 million. KRA cross-references bank records, mobile money data, and payment platforms. Turnover that would trigger VAT registration is increasingly visible to the tax authority. Register when you should.

Assuming WHT settles your tax bill. Withholding tax is a payment on account, not a final tax. Your annual return will show whether WHT and instalments together cover your full liability, or whether there is a balance. Do not stop paying instalments just because clients are withholding 5%.

Practical Steps to Get Compliant

If you are currently self-employed and have not been managing tax proactively, here is where to start:

1. Get a KRA PIN if you do not already have one. Apply at itax.kra.go.ke. You need your national ID number and a working email address.
2. Open a separate business bank account. From today, all business income goes in and all business expenses come out of this account. Your personal finances stay separate.
3. Set up a simple income and expense tracker. A spreadsheet works fine. Track every payment received and every business cost, monthly. You do not need accounting software — a clean spreadsheet is enough for most freelancers to produce an accurate annual summary.
4. Estimate your annual tax liability. Take your projected annual income, subtract estimated allowable expenses, and run the resulting profit through the PAYE bands (minus personal relief). Divide by four. That is your quarterly instalment figure.
5. Pay instalments via iTax. Go to Returns → Instalment Tax on itax.kra.go.ke. The due dates are 20 April, 20 June, 20 September, and 20 December. Pay each one on time.
6. File your annual return by 30 June. Download the IT1 Excel form from iTax, complete it with your annual income and expenses, upload it, and settle any remaining balance.

The system is more manageable than it appears from the outside. The core obligation — calculate your profit, apply the tax bands, pay in four instalments, reconcile at year end — follows a simple rhythm once you set it up. The paperwork burden for most freelancers is genuinely not heavy. What makes it complicated is leaving it entirely unaddressed and then facing several years of penalties and back taxes at once.

Start where you are. Get the PIN, open the business account, and pay the next instalment by the next due date. That is the whole system, entered at the right point.