Aviq Podcast episode highlights on Tax Tips for Freelancers and Consultants: What You Need to Know, a conversation between Beatrice Njeri, Certified Public Accountant (Kenya) & Partner at ushuru.co.ke and Wangechi Kanyeki.
Introduction
After the pandemic, people started working remotely. Many turned to consultancy, and others lost their jobs. There’s been a big increase in freelancing and consulting. What do they need to know about tax returns? Remember, their income is seasonal—some months they earn, others they don’t.
Are they still required to file returns?
Everyone with a PIN must file a return. Freelancers and consultants are considered businesses—sole proprietors earning income from their work. That income must be declared, and tax paid on it.
What documents do they need? And are they expected to meet the upcoming deadline?
Yes. Since they’re treated as a business, they file the same type of return that a business would file by the end of June. It’s essentially the same form, just for an individual rather than an organization.
A freelancer uses the same template as an employed person, but they must declare all income earned during the year. The key difference: they’re allowed to claim expenses—but only expenses incurred to generate that income. A freelancer should prepare a profit and loss account to determine their taxable profit. So, they file like an employee but can deduct business-related expenses.
Do they need to keep track of their expenses?
That’s right. And those expenses must be backed up. Under the Etims system (which we’ll discuss later), all claimed expenses must be supported by an Etims invoice—similar to the old ETR receipts. So, you need an Etims invoice for an expense to be eligible for deduction. And it must be business-related. You can’t just bring an entertainment receipt and claim it for tax purposes.
Employees are getting tax reductions for pensions or insurance. What about freelancers? Do they get any benefit if they have their own personal pension?
The return for a freelancer and an employee is basically the same, except freelancers can claim expenses. The same reliefs and benefits that apply to employees: pension, insurance policy, education policy, and mortgage, also apply to freelancers and consultants.
What are the consequences if a freelancer or consultant doesn’t file returns, simply because they didn’t know?
You’d be surprised how many freelancers out there don’t know they’re supposed to file. They have a PIN and earned income, but they don’t file. Even for freelancers, failure to file attracts late-filing penalties.
What’s the deadline for tax returns in Kenya?
The filing deadline is 30th June. It’s fast approaching. If you need any assistance, we’re here to help relieve you of the burden of figuring out what business expenses to recognize and how to compute taxes.
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