A credit note reduces or cancels an invoice you have already sent. This free UK template is set up the way HMRC expects: you quote the original invoice number and date, give a reason, list the items being credited and use the same VAT rate as the original. The net, VAT and total credit calculate automatically.
Why use a credit note instead of changing the invoice?
Once an invoice has gone to a customer it should stay as it is. Editing it leaves a gap between your records and theirs, and a VAT-registered customer may already have reclaimed the VAT on it. A credit note keeps both documents in the record and shows exactly what changed and why.
Common reasons include:
- Goods returned or rejected
- An overcharge or pricing error
- A discount or goodwill gesture agreed after invoicing
- Cancelling an invoice raised in error
Getting the VAT right
If you charged VAT on the original invoice, credit it back at the same rate. HMRC’s general VAT guide (VAT Notice 700) says a credit note must show the rate and amount of VAT credited and identify the original invoice by number and date. Getting this right lets your customer reduce the VAT they reclaimed and lets you reduce the VAT you owe.
If you are not VAT-registered, leave VAT % blank on each line, and the total credit is simply the net amount.
Recording credit notes in your books
Enter a credit note as negative income in your sales records, against the same customer. That keeps your turnover figure accurate, which matters when you compare it with the VAT threshold or report income under Making Tax Digital for sole traders.
