Filing a VAT Return in Grenada: Output Tax, Input Tax and Timing

Once a business is registered for VAT in Grenada, the monthly return becomes one of its fixed rhythms. Each period it has to work out the VAT charged on sales, the VAT it can reclaim on purchases and imports, and pay the difference to the Inland Revenue Division on time. The arithmetic is simple. The difficulty lies in the inputs: incomplete sales records, purchase invoices that do not qualify, Customs entries filed in a drawer, and returns prepared in a hurry on the deadline day.

This page walks through a return from the bookkeeping that feeds it to the payment that closes it, explains what makes an invoice valid for claiming input tax, and lists the errors that most often lead to queries. Forms, filing channels and due dates are set by the Division and the VAT legislation and do change, so check them against the current guidance before each year.

The structure of a return

A VAT return reports three main things for the tax period. The first is the value of supplies made, split by the rate that applies: standard-rated sales at 15 per cent, reduced-rate supplies such as hotel accommodation, zero-rated supplies such as exports, and exempt supplies. The second is the output tax charged on the taxable supplies. The third is the input tax the business is entitled to deduct on its purchases and imports.

Output tax minus input tax gives the net amount. If the result is positive, the business pays it to the Inland Revenue Division with the return. If it is negative, because input tax exceeded output tax, the business has a credit that may be carried forward or claimed as a refund under the conditions set by the law.

Most registered businesses in Grenada file monthly. Returns are due even when there were no sales in the period, so a guesthouse closed for September still files. The filing deadline falls a set number of days after the period ends; confirm the exact day with the Division and put it in the calendar for every month.

Preparing the return, month by month

A routine that runs through the month makes the return a short job rather than a crisis. A workable sequence is:

1. Record every sale as it happens, with the date, customer, amount before VAT, VAT charged and the rate applied. Point of sale systems and invoicing software can do this automatically.
2. File purchase invoices weekly, checking each one is a valid tax invoice from a registered supplier before entering the VAT amount as input tax.
3. Keep Customs entries and the receipts for VAT paid on imports with the related supplier invoices, because import VAT is claimed from those records.
4. At month end, total sales by rate and total output tax; reconcile the total against bank deposits and the cash book.
5. Total input tax from valid invoices and Customs entries, leaving out anything blocked or relating to exempt supplies.
6. Complete the return, check the figures against the previous month for anything unusual, and file it by the deadline.
7. Pay the amount due through an accepted method and keep proof of payment with a copy of the return.

What makes an input tax claim valid

A proper tax invoice. The supplier's invoice should show its name and taxpayer identification number, the date, a description of the goods or services, the value before VAT, the rate and the amount of VAT. A till slip without those details may not be enough.

A business purpose. Input tax is deductible only on purchases used to make taxable supplies. VAT on a personal expense paid through the business is not claimable.

The right period. Claim input tax in the period in which you hold the valid invoice, or within the time allowed by the law if you claim it later. Very old invoices may be out of time.

No blocked items. VAT legislation commonly restricts input tax on certain items, such as entertainment and some motor vehicles. Check the current list with your accountant before claiming.

Apportionment where needed. If the business makes both taxable and exempt supplies, only the portion of input tax relating to taxable supplies can be claimed, using a method agreed with the Division.

Imports, Customs and VAT

For many Grenadian businesses, a large share of input tax arises at the port rather than on local invoices. Goods imported through Customs attract VAT along with any duties and charges, and a registered business can usually claim the import VAT as input tax, provided it holds the Customs entry and evidence of payment in its own name.

Problems arise when goods are imported in someone else's name, such as a broker, a family member or a freight consolidator, or when entries are lost. Make sure the importer of record is the registered business, and that your customs broker sends you copies of every entry promptly. File them with the commercial invoice and shipping documents so the cost of the goods and the VAT can be traced.

Duty and other import charges are not VAT and cannot be claimed as input tax. They form part of the cost of the goods for income tax purposes instead. Keeping the components separate in your records avoids errors on both the VAT return and the annual accounts.

Refunds and credits

Some businesses regularly find that input tax exceeds output tax: exporters, businesses in heavy investment phases, and those selling mainly zero-rated goods. How credits are handled matters for cash flow:

• Carry forward. A credit can typically be carried forward and set against future output tax, which is simple but slow if the business is in credit month after month.
• Refund claims. The law provides for refunds under defined conditions. Refund claims tend to attract closer checks, so the supporting records must be complete.
• Verification. Expect the Division to ask for invoices, Customs entries and evidence of exports before paying a refund.
• Timing. Refunds can take time, so do not build a business plan that depends on receiving them quickly.
• Offset. Where the business owes other taxes, a VAT credit may be applied against those liabilities rather than paid out; ask the Division how it treats your account.

Records the Division may ask to see

Returns are filed as summaries, but the Inland Revenue Division can ask for the records behind them during a review or before paying a refund. Keep the following for at least the period the law allows the Division to examine, generally several years, in an order that lets you find any month quickly:

• Copies of every sales invoice issued, numbered in sequence, with credit notes cross-referenced to the original invoice.
• Till or point-of-sale reports and daily cash-up sheets for cash sales, reconciled to bank deposits.
• Original purchase tax invoices supporting each input tax claim, filed by month.
• Customs entries, commercial invoices and evidence of import VAT paid.
• Export documentation, such as bills of lading or airway bills, supporting any zero-rated sales.
• The working papers used to prepare each return, including any apportionment calculation.
• Bank statements for every business account, and records explaining deposits that are not sales, such as loans or owner capital.

Errors that lead to queries and penalties

Filing late or not at all. Late filing and late payment attract penalties and interest, even when the amount owed is small. A nil return filed on time costs nothing.

Sales figures that do not match the bank. If deposits are much higher than declared sales, the Division will ask why. Record and explain transfers, loans and owner deposits that are not sales.

Input tax without invoices. Claims supported only by bank statements or receipts lacking the supplier's details are vulnerable on review.

Wrong rate. Applying the reduced rate to items that are standard-rated, or zero-rating local sales, creates underpayments. Check how each product or service is classified.

Forgetting adjustments. Credit notes, bad debts and changes in use of assets need specific treatment. Ask your accountant how to record them rather than simply deleting the original sale.

Frequently asked questions