Free Credit Note Template
A credit note is a document issued by a seller to a buyer to reduce the amount owed on a previous invoice. It is used for returns, overcharges, pricing adjustments, or cancelled orders, and is essential for accurate VAT accounting in the UK. British businesses must follow HMRC credit note rules to remain compliant with UK tax law.
| Description | Qty | Unit Price | Amount Credited |
|---|---|---|---|
| Product A — Medium (returned, 5 units) | 5 | 24.99 GBP | 124.95 GBP |
| Subtotal | 124.95 GBP |
| VAT adjustment (20%) | 24.99 GBP |
| Total Credit | 149.94 GBP |
This credit note relates to invoice INV-2026-045 dated 01 March 2026 and adjusts the output VAT originally accounted for on that invoice in accordance with regulation 15 of the Value Added Tax Regulations 1995 and HMRC VAT Notice 700 §18.
Method of credit: The amount of 149.94 GBP shall be offset against the next invoice(s) issued by the Issuer to the Customer, within 14 days of the date of this credit note.
VAT adjustment: Output VAT adjusted in the Issuer's VAT return for the quarter ending 30 June 2026, pursuant to regulation 15A of the VAT Regulations 1995. The Customer must make a corresponding input-tax adjustment under regulation 38.
Authorised by: Jane Elizabeth Thompson, Accounts Manager.
Please confirm receipt of this credit note by reply email.
This credit note is issued in accordance with the Value Added Tax Act 1994, VAT Regulations 1995 regs.14 and 15, and the Companies (Trading Disclosures) Regulations 2008. Records are retained in accordance with Making Tax Digital for VAT (Finance (No.2) Act 2017 Sch.14) and the UK GDPR / Data Protection Act 2018.
What Is a Credit Note?
A credit note (also called a credit memo) is a formal document issued by a business to a customer that reduces or cancels all or part of a previous invoice. It effectively reverses the original charge or adjusts the amount owed.
Credit notes are commonly issued when goods are returned, services are not delivered as agreed, an invoice contained an error, a discount is applied after invoicing, or an order is cancelled. They are a standard part of business accounting practice.
For VAT-registered businesses in the United Kingdom, credit notes have specific requirements under HMRC rules. A credit note that relates to a VAT invoice must include prescribed information and be used to adjust the VAT owed in the relevant British VAT return.
What's Covered in This Template
Our credit note template includes all the fields required for VAT compliance:
Credit Note Number
A unique sequential number for record-keeping and audit purposes.
Date of Issue
When the credit note is issued.
Seller Details
Business name, address, and VAT registration number.
Buyer Details
Customer name and address.
Original Invoice Reference
The invoice number and date being adjusted.
Reason for Credit
Why the credit note is being issued — return, overcharge, discount, etc.
Line Items
Description, quantity, unit price, and total for each credited item.
VAT Breakdown
VAT rate and amount for each line item, and total VAT credited.
Total Credit Amount
The total amount being credited including VAT.
Payment Instructions
How the credit will be applied — refund, offset against future invoices, or account credit.
How to Create a Credit Note
Follow these steps to issue a correct and compliant credit note:
- 1
Identify the Original Invoice
Locate the invoice being adjusted and note its number, date, and the items or amounts affected.
- 2
Determine the Reason
Establish why the credit note is needed — goods returned, pricing error, partial cancellation, or agreed discount.
- 3
Calculate the Adjustment
Work out the net amount, applicable VAT, and total credit. Ensure the VAT rate matches the original invoice.
- 4
Complete the Template
Fill in all fields including your business details, the customer's details, the original invoice reference, and the line items being credited.
- 5
Issue and Record
Send the credit note to the customer and record it in your accounting system. Adjust your VAT return accordingly.
Legal Considerations
Credit notes for VAT-registered businesses in the UK must comply with HMRC requirements.
This template is for informational purposes only and does not constitute legal advice. Consult a qualified solicitor for advice specific to your situation.
Reviewed for England & Wales law
VAT Credit Notes
UK HMRC requires that a VAT credit note includes the supplier's name, address, and VAT number, the customer's name and address, a unique credit note number, the date, a reference to the original VAT invoice, a description of the goods or services, the quantity and amount credited, and the VAT rate and amount. This is set out in the British VAT Regulations 1995.
VAT Return Adjustments
When a credit note is issued in the United Kingdom, the supplier must reduce the output VAT in their VAT return for the period in which the credit note is issued. The customer should reduce their UK input VAT claim accordingly.
Record-Keeping
HMRC requires British businesses to keep credit notes for at least six years. Under Making Tax Digital (MTD), UK credit notes must be recorded digitally. Your accounting software should link credit notes to the original invoices.
Self-Billing
If you have a self-billing arrangement in England and Wales (where the customer issues invoices on the supplier's behalf), the customer also issues credit notes. The same UK VAT rules and information requirements apply. HMRC guidance on self-billing credit notes is available through the United Kingdom government's official tax guidance pages.
Frequently Asked Questions
Issue a Professional Credit Note
Use our free template to create a VAT-compliant credit note in minutes. Adjust invoices accurately and keep your records straight.
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