How to use it
- 1Give the credit note its own number and date. Many businesses run a separate credit note sequence.
- 2Quote the number and date of the invoice it relates to.
- 3Describe what's being credited, with the quantity and amount for each line, and the reason.
- 4Show the VAT rate and the VAT credited in sterling. If the credit doesn't adjust VAT, delete the VAT rows and keep the line that says it isn't a credit note for VAT.
- 5Send it to the customer, keep a copy, and adjust your VAT records for the period.
What each field means
- Credit note number and date
- An identifying number and the date of issue.
- Original invoice
- The number and date of the VAT invoice being credited. If you can't identify it, for example with returned goods, you must be able to show HMRC by other means that you accounted for VAT on the original supply.
- Lines
- A description that identifies the goods or services, with the quantity and amount for each.
- Totals
- The total credited excluding VAT, and the rate and amount of VAT credited in sterling.
What a valid VAT credit note shows
VAT Notice 700 says that to be valid for VAT a credit note must reflect a genuine mistake, an overcharge or an agreed reduction in the value of the supply, and give the customer a genuine entitlement to the amount, either refunded or set against future supplies.
It must show its identifying number and date of issue, the supplier's name, address and VAT number, the customer's name and address, a description of what's being credited, the quantity and amount for each description, the total credited excluding VAT, the rate and amount of VAT credited in sterling, and the number and date of the original VAT invoice.
The notice also says a valid credit note is issued within 14 days of the refund payment being made to the customer.
Credit notes that don't change the VAT
If you issue a credit note without a VAT adjustment, VAT Notice 700 says it should state 'This is not a credit note for VAT'. The template includes that line for you to keep or delete.
Credit and debit notes are part of the business records HMRC expects you to keep for VAT, for at least 6 years.
Licence and disclaimer
Free to use, copy and adapt for your own business or personal records. Please don't resell it or republish it as your own template.
A template is a starting point, not advice for your circumstances. Check the result against the GOV.UK guidance linked below, or ask an accountant.
Related
What else will you need?
- TemplateInvoice templateAn invoice must show a unique number, your business name and address, the customer's name and address, a description of what you supplied, the supply and invoice dates, and the total owed.PDFWordExcel
- TemplateInvoice registerAn invoice register lists every invoice a business issues, with its unique number, customer, amounts, due date and what has been paid.Excel
- TemplateRecord retention scheduleHow long you keep records depends on the tax.PDF
Rather we did it?
Countify can handle this for you, for a fixed fee agreed upfront.
Questions
Frequently asked questions.
Does a credit note have to quote the original invoice?
Yes, its number and date. If you can't, for example because returned goods can't be matched to an invoice, you must be able to satisfy HMRC by other means that you accounted for VAT on the original supply.
What if I'm giving a refund without changing the VAT?
Then the credit note should say 'This is not a credit note for VAT', and you leave the VAT rows off.
Is there a time limit for issuing a credit note?
VAT Notice 700 says a valid credit note is issued within 14 days of the refund payment being made to the customer.
How long do I keep credit notes?
Credit notes issued and received are VAT records, which VAT Notice 700/21 says to keep for at least 6 years.
Checked against GOV.UK on · Reviewed by Kamran Ishaq FCCA, Founder & CEO, on .
Sources: VAT guide (VAT Notice 700): VAT invoices and credit notes (opens in a new tab) (HM Revenue & Customs); Record keeping for VAT (VAT Notice 700/21) (opens in a new tab) (HM Revenue & Customs).