How to Issue a Credit Note in the UK

Never Delete an Invoice — Issue a Credit Note Instead

Once an invoice is issued and recorded, you cannot delete it or alter it. HMRC requires complete audit trails. If you need to cancel or amend an invoice, issue a credit note.

What's a Credit Note?

A credit note is a document that reduces or cancels the amount owed on an earlier invoice. It's legally valid and fully traceable.

When to Issue a Credit Note

• Customer returned goods
• Service wasn't provided correctly
• Discount applied after invoice issued
• Overcharge on invoice
• Customer disputes invoice amount

Format

CREDIT NOTE

Your Company Ltd
123 Business Lane
London, EC1A 1BB
VAT Reg: GB 123 4567 89

Credit Note Number: CN-0012
Date: 20 May 2026

Related to: Invoice INV-0045 (dated 15 May 2026)

Description
─────────────────────────
Return: Website design (rejected, not used)
Original invoice amount: £2,000
Credit amount: £2,000

Total Credit: £2,000 (including VAT if applicable)

This credit note cancels the above invoice amount.

Key Rules

• Sequential numbering — Credit notes need their own numbers (CN-001, CN-002)
• Reference original invoice — Show which invoice it relates to
• Show VAT — If original was VAT-invoiced, show VAT on credit too
• Keep both documents — Don't delete original or credit note
• Inform customer — Send credit note to customer so they know the adjustment

VAT Treatment

If the original invoice had VAT:

• Full credit: You reclaim the VAT with HMRC (reduce your VAT return)
• Partial credit: Reclaim only the VAT portion of the credit

FAQ

Can I issue a credit note months after the invoice?

Yes, but you have limits. For VAT recovery, you must issue it within 6 months of the invoice date.

What if customer paid the invoice, then I issue a credit note?

The credit note becomes a credit in their account. They can use it against future purchases or you refund them the credit amount.