18/02/2026
If you are a HR outsourcing company, you should probably stop scrolling for a minute.
In May 2025, the Tax Appeals Tribunal delivered a decision that every HR outsourcing firm in Kenya should quietly read twice.
In Clovers Management and Training Consultants Limited v Commissioner of Domestic Taxes, an HR outsourcing company found itself staring at a KES 103.3 million assessment.
Breakdown:
Corporate Tax: KES 19.3M
VAT: KES 84.0M
Total exposure: KES 103M.
What triggered it?
The company’s position was straightforward. They argued they were simply disbursing salaries on behalf of their clients, acting as an agent, not an employer.
The payroll funds flowed through their account, but the employees, they said, belonged to the client. The Tribunal saw it differently, after analysing contracts and bank flows, it held that:
The outsourced staff were legally employees of the HR firm
Payroll inflows formed part of the company’s taxable turnover
VAT applied to the full invoice value, salary plus markup
Banking analysis by KRA was valid in determining turnover
The appeal was dismissed. And just like that, a payroll model became a nine-figure tax exposure.
Why This Matters for HR & Payroll Consultants
If your firm:
Receives full payroll into its own bank account
Controls or signs employment contracts
Issues consolidated invoices (salary + service fee)
You may believe you’re facilitating payments, but KRA may see something else entirely.
They may see an employer, and that changes everything:
Corporate tax exposure
VAT liability on gross flows
PAYE obligations
The uncomfortable question. If KRA analysed your payroll bank flows today, would your structure clearly demonstrate agency? Or would it look like employment?
In this case, the structure cost KES 103 million.
For HR outsourcing firms, this isn’t theoretical risk, it’s structural risk.
Before an audit stress-tests your model, it may be worth stress-testing it yourself.
