Issue a credit note when the amount due on an invoice you've already sent goes down, for example after an overcharge, a return or a discount agreed later. If you're VAT registered, you have 14 days from the change to provide it, it must carry a set list of details, and the VAT adjustment goes in the return for the period when the change happened, not the period of the original invoice.
In this article
The short version
- Issue a credit note when the amount due on an invoice you've already sent goes down.
- VAT-registered businesses have 14 days from the change to provide it.
- It needs its own number and date plus the original invoice's number and date.
- The VAT adjustment goes in the return for the period of the change, not the original invoice.
- A credit note because the VAT rate changed has 45 days instead of 14.
When you need a credit note
A credit note reduces what your customer owes on an invoice you've already issued. The usual reasons are:
- you overcharged, or invoiced the wrong quantity
- goods came back, or part of the work wasn't delivered
- you agreed a discount or a settlement after invoicing
- you invoiced the wrong customer and need to reverse it
If the amount goes up after you've invoiced, the VAT rules call the document a debit note, and it works the same way in the other direction.
For VAT-registered businesses the timing is set out in regulation 15C of the VAT Regulations 1995: you have 14 days from the day the decrease happens to provide the credit note. Fourteen days doesn't wait for your month-end billing run, so if you agree a credit on 10 June, the credit note is due by 23 June. The same 14 days applies to debit notes.
There's one exception to that rule. It doesn't apply where the original sale was goods to someone who isn't VAT registered, such as a consumer buying a product. You'll usually still want to issue one in that case, because it keeps your sales ledger and the customer's account straight.
What a credit note must show
For a VAT-registered business, a credit note for a reduced amount needs:
| Detail | What to watch |
|---|---|
| Its own identifying number and date of issue | Not the original invoice's number or date |
| Your name, address and VAT registration number | As on the original invoice |
| Your customer's name and address | |
| The number and date of the original VAT invoice | So the two documents can be tied together |
| A description of the goods or services | Enough to identify what's being credited |
| The amount of the decrease, excluding VAT | The net figure |
| The VAT rate and the amount of VAT credited | In sterling |
A debit note carries the same details, with the VAT charged on the increase in place of the VAT credited.
If you're issuing the credit because the VAT rate itself changed, a different rule applies: the credit note has its own heading and you get 45 days from the change instead of 14.
Which VAT return the credit goes in
When the change happens after the period of the original sale has ended, the adjustment goes in the VAT return for the period when the change happened. You don't reopen the earlier return. If you invoiced in March and agree a credit in May, the credit goes in the return covering May.
Your side of it is a negative entry against the VAT you owe. Your customer, if they're VAT registered, makes the matching adjustment against the VAT they reclaimed, so the credit note matters to their records as much as to yours.
For an increase, there's an extra condition on your customer: they can't adjust their VAT for the extra amount until they hold the debit note from you. If you agree a price increase and don't send the debit note, they can't account for the extra VAT until you do.
How to correct an invoice cleanly
It's tempting to fix a wrong invoice the quick way, but each shortcut tends to cause a problem further down the line.
Editing the original after it's gone out leaves you and your customer holding different versions of the same invoice, with the same number. Deleting it and starting again leaves a gap in your numbering with nothing to explain it. Quietly netting the difference off the next invoice is convenient, but it blurs which sale the adjustment belongs to, and a customer reclaiming VAT needs a document that ties the credit to the original invoice.
The clean route is a credit note against the original, followed by a fresh invoice if anything is still owed, with both documents kept. Many businesses number credit notes in their own series so corrections are easy to find later.
Raise the credit note in the same system that holds the invoice, so your ledger, your customer's statement and any reminders all reflect what's actually owed. Adfin's two-way sync with Xero and QuickBooks covers credit notes as well as invoices and payments, so a credit you raise in your accounting software reaches Adfin too, and its collection agents don't keep chasing an amount you've already reduced.
Common questions
When should I issue a credit note? When the amount due on an invoice you've already sent goes down. If you're VAT registered, you have 14 days from the change.
What's the difference between a credit note and a debit note? A credit note reduces the amount on an invoice and a debit note increases it. Both need the same details and both have a 14-day limit.
Which VAT return does a credit note go in? The return for the period when the change happened, not the period of the original invoice.
Does a credit note need its own number? Yes. It needs its own identifying number and date of issue, plus the number and date of the original invoice.
Can I just cancel the original invoice instead? Once your customer has it, no. Issue a credit note that refers to it and keep both documents.
Is the deadline ever longer than 14 days? Yes. When the credit note is needed because the VAT rate changed, you have 45 days from the change.
Sources
- legislation.gov.uk - The Value Added Tax Regulations 1995, regulation 15C (accurate as of October 2026) https://www.legislation.gov.uk/uksi/1995/2518/regulation/15C
- legislation.gov.uk - The Value Added Tax Regulations 1995, regulation 38 (accurate as of October 2026) https://www.legislation.gov.uk/uksi/1995/2518/regulation/38
- legislation.gov.uk - The Value Added Tax Regulations 1995, regulation 15 (accurate as of October 2026) https://www.legislation.gov.uk/uksi/1995/2518/regulation/15
- HMRC - Record keeping (VAT Notice 700/21) (accurate as of October 2026) https://www.gov.uk/guidance/record-keeping-for-vat-notice-70021
- Adfin - Pricing (accurate as of October 2026) https://www.adfin.com/pricing
