The general rule is short. Anything an employer gives an employee because of the job is employment income, whether it comes as cash or not. Cash allowances are the easy part: house, transport and airtime allowances paid in cash are simply pay. They go into Total Cash Pay on the P10 and are taxed with salary. This guide is about everything else: the car, the house, the canteen lunch, the school fees. For these the payroll has to put a value on the benefit and add it to taxable pay, even though no money changes hands.
KRA values benefits at the higher of the cost to the employer and the fair market value, unless a specific rule or prescribed rate applies.
The KES 5,000 non-cash limit
Since 27 December 2024, non-cash benefits worth KES 5,000 a month or less in total (KES 60,000 a year) are not taxed. The previous limit was KES 3,000.
It’s a threshold, not an allowance. If the month’s non-cash benefits come to more than KES 5,000, the whole value is taxable, not just the excess. KRA’s P10 guide says this in terms.
| Benefits in the month | Taxable |
|---|---|
| Airtime 3,000 + gym 2,000 = 5,000 | Nil |
| Airtime 3,000 + gym 2,500 = 5,500 | 5,500 |
That extra KES 500 of gym membership costs a 30% taxpayer KES 1,650 in PAYE. Where benefits sit near the line, it’s worth agreeing a package that stays under it. Total the benefits per employee each month, because the test is on the aggregate.
Meals
Meals have their own rule. Meals provided in the employer’s canteen, or by a third-party caterer registered for tax, are tax-free up to KES 5,000 a month (KES 60,000 a year). Here only the excess is taxed. KRA’s P10 guide says the incremental amount above KES 5,000 is taxed on the employee. A KES 6,500 monthly meal benefit adds KES 1,500 to taxable pay.
Don’t put meals in the general non-cash column. Sheet B has a separate column for them.
Car benefit
A car the employee can use privately is taxed at the higher of:
- 2% a month of the car’s initial cost, and
- the Commissioner’s prescribed rate for the car’s type and engine size.
The prescribed rates run from KES 3,600 a month for small saloons and pickups up to KES 14,400 for saloons over 3,000cc. In practice 2% of cost wins for almost every car: on a vehicle costing more than KES 720,000, 2% beats even the highest scale rate. For a leased or hired car, the benefit is the lease or hire cost.
A car bought for KES 3,500,000 gives a car benefit of KES 70,000 a month. Here is the effect on an employee on KES 120,000 basic:
| Item | Without car | With car |
|---|---|---|
| Taxable pay | 108,420.00 | 178,420.00 |
| Tax on the bands | 27,309.35 | 48,309.35 |
| PAYE | 24,909.35 | 45,909.35 |
PAYE rises by KES 21,000 a month, which is 30% of the benefit. This example keeps SHIF and the Housing Levy on cash pay. Whether a benefit in kind belongs in those bases isn’t settled as clearly as the PAYE treatment, so confirm it for your payroll.
Two points come up again and again. The car benefit continues while the car is available for private use, including months the employee is on leave. And if private use really is restricted, the employer can apply to the Commissioner for a lower value. Until a determination arrives, use the full rate.
Housing benefit
Where the employer provides housing, the taxable value for an ordinary employee is the highest of:
- 15% of the employee’s total employment income, excluding the housing value
- the fair market rent
- the rent the employer actually pays.
Agricultural employees housed on the farm use 10% instead of 15%. Directors have their own rules. Any rent the employee pays back is deducted from the benefit.
A cash house allowance is not a housing benefit. It’s cash pay, taxed in full. Payrolls sometimes value a company house and pay a house allowance, and then forget one of them.
Per diem and travel
Since 1 July 2025, a per diem or subsistence allowance for working away from the usual place of work is tax-free up to KES 10,000 a day. The limit was KES 2,000 before that.
| Trip | KES |
|---|---|
| Per diem paid: 3 days at 12,000 | 36,000 |
| Tax-free: 3 days at 10,000 | 30,000 |
| Taxable | 6,000 |
The excess goes through payroll as taxable pay unless the employee accounts for it with receipts, in which case it is a reimbursement of actual costs. Count the days the employee was actually away. A per diem paid as a flat monthly sum, regardless of travel, is not a per diem and is taxable in full.
Mileage paid at the AA Kenya rates for official travel is a reimbursement and not taxed. Anything above those rates has been taxable since 1 July 2023.
School fees
School fees for an employee’s children are a common benefit in family-owned companies, and treating them correctly comes down to a choice. If the employer deducts the fees as a business expense, they are a taxable benefit to the employee at cost. If the employer doesn’t claim the deduction, the fees are not taxed on the employee. Decide which applies before the first term’s fees are paid, and record it. It shouldn’t be a year-end adjustment.
Items that are not taxed on the employee
- Medical cover provided to full-time employees, including their spouse and up to four children under 21. Directors who own 5% or more of the company are subject to separate rules.
- Employer pension contributions to a registered scheme, up to KES 30,000 a month.
- Group life cover where the policy confers no benefit on the employee or their dependants.
- Passages for non-citizens recruited from abroad solely to work for the employer.
Where each figure goes on the P10
Sheet B of the simplified P10 has separate columns for car benefit, meals, non-cash benefits and housing. An “other benefits” column covers items like employer-paid water and electricity and the private share of a company phone. KRA values the phone benefit at 30% of the cost. Fill each column from the payroll. Don’t fold benefits into cash pay. It makes the KES 5,000 tests impossible to check, and KRA’s system applies them by column. See the guide to filing the P10 on iTax.
To see what a benefit does to take-home pay, add its value to taxable pay in the PAYE calculator.