How to Create a Credit Note in the UK
The correct way to amend or reverse an invoice — including UK legal requirements and VAT implications.
What Is a Credit Note?
A credit note is a document that reduces or cancels the amount a client owes on a previously issued invoice. It's the formal way to correct invoicing errors, process returns, or adjust prices after an invoice has been sent.
You should never delete or edit an invoice that has already been sent. Instead, issue a credit note and (if needed) raise a new corrected invoice. This keeps your records accurate and audit-ready.
When to Issue a Credit Note
- 🔄 Goods returned — the client returns products and needs a refund or credit against their account.
- 🔄 Invoice error — wrong amount, incorrect description, or duplicate invoice.
- 🔄 Price adjustment — a retrospective discount, early-payment rebate, or renegotiated rate.
- 🔄 Service not delivered — part of the invoiced work was not completed.
- 🔄 Cancellation — the order or project was cancelled after invoicing.
What Must a UK Credit Note Include?
- ✅ The words "Credit Note"
- ✅ A unique credit note number (sequential, separate from invoice numbers)
- ✅ Date of issue
- ✅ Your business name, address, and VAT number (if registered)
- ✅ The client's name and address
- ✅ Reference to the original invoice (invoice number and date)
- ✅ Reason for the credit
- ✅ Amount credited (with VAT breakdown if applicable)
- ✅ The net effect on the outstanding balance
VAT Implications of Credit Notes
If you're VAT-registered, a credit note affects your VAT return. You must:
- 📊 Reduce your output VAT by the VAT amount shown on the credit note.
- 📊 Record the adjustment in the VAT period the credit note is issued (not the period of the original invoice).
- 📊 Keep the credit note for at least 6 years as part of your VAT records.
⚠️ Important VAT Note
Your client must also adjust their input VAT to match the credit note. If you're issuing a credit note to a VAT-registered client, ensure they receive a copy for their records.
Full vs Partial Credit Notes
You can issue a credit note for the full invoice amount (a complete reversal) or for a specific portion:
Full Credit Note
Cancels the entire invoice. Use when the whole order is returned, the project is cancelled, or the invoice was issued in error. The balance owed becomes zero.
Partial Credit Note
Reduces the invoice by a specific amount. Use when one line item is returned, a discount is applied, or part of the work wasn't completed. The remaining balance stays payable.
Frequently Asked Questions
What is a credit note?
A credit note reduces or cancels the amount owed on a previous invoice. It's the formal way to correct errors, handle returns, or apply discounts after an invoice has been issued.
Should I delete an invoice or issue a credit note?
Never delete a sent invoice. Issue a credit note against it instead, then raise a new corrected invoice if needed. This maintains a proper audit trail.
How does a credit note affect VAT?
A credit note reduces the VAT you owe to HMRC. Adjust your output VAT in the period the credit note is issued, not the period of the original invoice.
What must a UK credit note include?
The words "credit note", a unique number, date, business details, client details, reference to the original invoice, reason for the credit, the amount credited with VAT breakdown, and the net balance effect.
Can I issue a partial credit note?
Yes. You can credit any portion of the original invoice — for example, refunding one line item while leaving the rest payable. Clearly state which items are being credited.
Issue Credit Notes in Seconds
Experi lets you create credit notes directly from any invoice with one click. VAT adjustments are calculated automatically.
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