Why KRA Might Audit Your Business: 3 Common Triggers Every Kenyan Business Owner Should Know

“If you think compliance is expensive, try non-compliance.” – Paul McNulty

For many business owners, the thought of a KRA audit sparks anxiety, and understandably so. Audits are often seen as invasive or punitive. However, the Kenya Revenue Authority (KRA) rarely conducts audits at random. In most cases, audits are triggered by inconsistencies or risk indicators in your business's tax filings and financial behavior.

With years of experience supporting SMEs and startups in Kenya, Makabe Consulting has identified the most common triggers that lead to audits and how businesses can proactively avoid them.

1. Mismatched Tax Data in the iTax System

Thanks to the KRA’s increasingly digital systems, data shared across platforms is automatically cross-verified. If the information a business reports doesn’t align with data from third parties or related systems, that’s a red flag.

Common discrepancies include:

• VAT returns vs. supplier VAT claims

• Declared sales vs. mobile money and bank deposit records

• Rental income vs. tenant disclosures or utility data

• PAYE submissions vs. statutory deductions (NSSF, NHIF, HELB)

Example: A business declares KES 1 million in annual sales, but its bank or Paybill records show transactions totaling KES 3 million. This inconsistency is likely to trigger a compliance review or audit.

Recommended Action: Businesses should routinely reconcile their accounting records with tax returns. Working with a qualified tax advisor can help detect and correct discrepancies early.
 

2. Late or Missing Tax Filings

Failure to file tax returns on time is one of the fastest ways to get flagged by KRA. A history of:

• Late submissions,

• Missing returns, or

• Filing nil returns while visibly operating a business

...raises serious compliance concerns.

KRA monitors taxpayer behavior. If a business consistently files nil VAT or income returns yet actively trades, it may prompt an investigation into undeclared revenue.

Recommended Action: Ensure all tax obligations — including VAT, PAYE, and Corporate Income Tax — are filed accurately and on time. Even nil returns should be backed by records that justify the lack of income.
 

3. Public Growth with Declining or Flat Tax Returns

A business might be scaling rapidly opening new branches, launching ad campaigns, or expanding online, while still declaring flat or declining income. This kind of mismatch between public visibility and filed tax data often leads to further scrutiny.

KRA uses data analytics to flag such inconsistencies and may conduct a lifestyle or business audit to determine the business's true financial position.

“Why is this company advertising heavily or hiring staff, yet reporting zero profit?”

Recommended Action: If business growth is funded by external capital (loans, grants, or investor funds), this should be properly recorded and distinguished from income. All growth should be reflected transparently in tax filings.
 

Conclusion: Avoiding a KRA Audit Starts With Accurate Compliance

While receiving an audit notice can be intimidating, it doesn’t always indicate wrongdoing. It often signals that something in the business’s records needs clarification.

To stay audit-ready:

• Maintain accurate and up-to-date books of account

• Reconcile tax and financial records regularly

• File returns on time, and support nil returns with documentation

• Seek expert support to navigate tax compliance effectively
   

Need Help Staying Compliant?

Makabe Consulting supports small businesses and entrepreneurs in Kenya with practical, tailored tax and accounting solutions. If there are concerns about audit risks or gaps in tax compliance, the team is ready to help your business stay ahead and stress-free.

👉 Reach out today for a consultation and let’s build a strong, audit-ready foundation for your business.