Credit Notes: When, How, and What NOT to Do

Correcting an invoice doesn't mean deleting it — that's not allowed. You issue a credit note. Here are the three situations where you need one, and the pitfalls to avoid.

A credit note is a "negative invoice" that corrects a previously issued invoice. From both a tax and legal perspective, this is the ONLY correct way to amend an invoice.

Three Situations

\n
1. Full cancellation: the customer has returned a product or a service is cancelled. Issue a credit note for the full amount.
\n
2. Partial correction: you overcharged, or the customer negotiated a discount after the invoice was sent. Issue a credit note for the difference.
\n
3. Administrative error: wrong VAT rate, wrong amount, or wrong customer. Issue a credit note against the original invoice and follow up with a new, corrected invoice.
\n

What Goes on a Credit Note?

\n
• Your own credit note number (in its own sequence or within your invoice sequence).
\n
• Reference to the original invoice ("Credit note for invoice [no.]").
\n
• Reason for the credit.
\n
• Amounts shown as negative (or labelled "to be credited").
\n
• VAT breakdown (also negative).
\n

Tax Implications

The credit note reduces your turnover in the VAT return for the relevant period. If payment has already been received, you must refund the amount — or offset it against a new invoice.

What NOT to Do

\n
• Delete or edit an invoice without issuing a credit note.
\n
• Skip invoice numbers — your numbering must be consecutive with no gaps.
\n
• Give an "informal" discount without a credit note.
\n

See also: invoice requirements, invoice number policy.