When should I issue a credit note?

Issue a credit note when you need to reduce the amount on a previous invoice — for example, goods returned, an overcharge, a pricing adjustment, or a cancelled order.

Does a credit note need a unique number?

Yes. Each credit note should have a unique sequential number, separate from your invoice numbering, for record-keeping and audit purposes.

Do I need to adjust my VAT return?

Yes. If you are VAT-registered, you must reduce your output VAT in the period the credit note is issued. The customer should also reduce their input VAT claim.

Can I issue a credit note for a non-VAT invoice?

Yes. Credit notes can be issued whether or not VAT is involved. For non-VAT invoices, the credit note simply adjusts the amount owed without a VAT component.

What is the difference between a credit note and a refund?

A credit note is a document that reduces the amount owed. A refund is the actual return of money. A credit note may lead to a refund, or the credit may be applied against future invoices.

How long must I keep credit notes?

UK HMRC requires VAT records, including credit notes, to be kept for at least six years. Good British accounting practice is to keep them for the same period as your invoices. England and Wales businesses should ensure records are accessible in digital format under Making Tax Digital requirements.

Can a credit note cancel an entire invoice?

Yes. A UK credit note can be issued for the full amount of the original British invoice, effectively cancelling it in England and Wales. Reference the original invoice clearly.

Is a credit note the same as a debit note?

No. A UK credit note is issued by the British seller to reduce what the buyer owes in England and Wales. A debit note is issued by the buyer to request a credit or formally notify the seller of an overcharge.

FinanceUnited Kingdom

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.

Create Your Credit Note (UK)

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CREDIT NOTE

CN-2026-005

Ref: PO-2026-0042

Bright Solutions Ltd

15 King's Road
London SW3 4UB

CREDIT NOTE DATE

20/03/2026

ORIGINAL INVOICE

2026-042

INVOICE DATE

15/03/2026

CURRENCY

GBP

FROM

Bright Solutions Ltd

Tax ID: VAT No: GB123456789 · Company No: 09876543 · Trading as: Bright Solutions

15 King's Road
London SW3 4UB

accounts@brightsolutions.co.uk

+44 20 7123 4567

www.brightsolutions.co.uk

BILL TO

Acme Manufacturing Ltd

Tax ID: VAT No: GB987654321

Attn: Sarah Thompson (Finance Manager)

88 Industrial Park
Birmingham B12 8QR

accounts.payable@acmemfg.co.uk

+44 121 555 1234

PO #: PO-2026-0042

Reason for Credit Note

Damaged or faulty goods — Two units arrived with cosmetic damage during transit. Replacement units shipped on 18/03/2026; credit issued for the damaged units.

This credit note is issued under VAT Regulations 1995 reg.15 and adjusts the output tax originally charged on invoice 2026-042 dated 15/03/2026.

	Description	Qty	Unit	Unit Price	Amount
1	Workshop laptop (damaged in transit)	2	ea	850.00	1,700.00
2	Restocking fee waived (admin only)	1	ea	75.00	75.00

Subtotal credited (Net)	£1,775.00
VAT credit @ 20% on £1,775.00	£355.00
TOTAL CREDITED	£2,130.00

REFUND DETAILS and NOTES
Refund Method: Bank refund (BACS) · Status: Issued
IBAN (for outgoing refund): GB29 NWBK 6016 1331 9268 19
Sort Code: 60-16-13 · Account No: 31926819
BIC/SWIFT: NWBKGB2L
Bank: NatWest Bank
Reference: Credit Note CN-2026-005
Refund of £2,070.00 issued via BACS on 21/03/2026, reference CN-2026-005. The remaining balance on invoice 2026-042 stands at £14,338.00 due on 14/04/2026.

ADJUSTMENT TO INPUT TAX

In accordance with VAT Notice 700 §18.2, the recipient must reduce the input tax claimed on the original invoice by the VAT amount shown on this credit note in the VAT period in which this credit note is received.

UK GDPR / Data Protection Act 2018: Personal data on this credit note is processed by Bright Solutions Ltd for contract performance and statutory tax / accounting obligations (Art. 6(1)(b) and (c) UK GDPR). Retention: 6 years (VAT Act 1994 Sch.11 para.6). Complaints to the ICO at www.ico.org.uk.

Credit note issued under VAT Regulations 1995 reg.14 and reg.15, with reference to the original invoice. The recipient must adjust their input tax claim accordingly (HMRC VAT Notice 700 §18). Retention: 6 years (VAT Act 1994 Sch.11 para.6).

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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.

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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

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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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