A credit note, also called a credit invoice or credit memo, is the document a seller issues to record an invoice credit: it reduces or cancels an invoice the customer already has. It carries its own number, quotes the original invoice and reverses the matching share of the price and tax.
Key takeaways
- Never edit or delete an invoice the client already has. Correct it with a numbered credit note that quotes the original.
- Voiding fits an invoice issued in error and caught before payment, if your system and local rules allow it. Keep the voided copy.
- A credit note shows the reason, the items credited, the amount before tax and the tax credited at the original rate.
- Undercharged a client? Issue a debit note or supplementary invoice for the difference.
- A “duplicate invoice” can be a marked copy, a second bill for the same work or a double payment. Only the second bill needs a credit note.
What is a credit note? How an invoice credit works
A sales invoice asks the customer to pay. A credit note records that they owe less than the invoice said, or nothing at all. The original stays in both sets of books as issued, and the two documents together show what was really sold.
The same document goes by several names:
- Credit note: the usual term in the UK and India.
- Credit memo (credit memorandum): the common US term.
- Credit invoice: sometimes used in parts of Europe and in accounting software.
- Adjustment note: the term in Australia's GST rules.
Under VAT, a credit note is a tax document: Article 219 of the EU VAT Directive treats a document that amends an invoice and refers to it specifically and unambiguously as an invoice.
When to issue a credit note
- Returns. The customer sends back some or all of the goods.
- Overbilling. You charged the wrong price, quantity or tax rate, or billed hours that weren't worked.
- Discounts agreed after invoicing. A volume rebate, a goodwill reduction for a late delivery, or an early-payment discount the customer took. For that last one, the UK lets you skip the credit note if the original invoice set out the discount terms as HMRC requires.
- Canceled orders. An order or project is canceled after you invoiced it.
- Settlements. You accept less to close a dispute.
- Invoices sent in error. The wrong client, or the same work billed twice.
A credit note isn't a way to write off a client who won't pay. HMRC says you may not issue a credit note simply because your customer has not paid, only for a genuine mistake, an overcharge or an agreed reduction. Unpaid debts fall under bad debt rules.
Void invoice vs delete vs credit note
There are three ways to undo an invoice, and they aren't interchangeable.
| Option | What it does | When it fits | Watch out for |
|---|---|---|---|
| Delete | Removes the record completely | Only a draft that was never sent | On an issued invoice, it breaks your numbering and audit trail |
| Void | Keeps the invoice but cancels it, with nothing due | An invoice issued in error and caught early, if your system and local rules allow it | All or nothing. The number stays used, so keep the copy and tell the client in writing |
| Credit note | Adds a new, numbered document that reduces or cancels the original | Any invoice the client has received, paid or recorded, or that's in a tax return. Also partial corrections | Must quote the original invoice. The tax adjusts in the period your rules set |
Don't delete issued invoices. In the UK, VAT-registered businesses must keep copies of all the sales invoices they issue, even ones they cancel or produce by mistake. HMRC's VAT manual accepts a break in the number sequence if you keep the canceled invoice or can explain the gap.
Voiding is safe only while nothing has happened on the other side: no payment, no entry in the client's books, nothing filed. Once an invoice is in a tax return or a government e-invoicing system, the window to cancel it is short or closed. In India, for example, an e-invoice can be canceled on the Invoice Registration Portal only in full and within 24 hours of its registration. After that, the usual fix is a credit note.
What a credit note must include
A credit note needs most of the same details as an invoice. This list builds on HMRC's checklist in VAT Notice 700, section 18.2.3, and works in most countries:
- A clear title, “Credit note”, so nobody files it as a new bill.
- Its own number and issue date. Number credit notes in their own series, such as CN-2026-0007.
- Your name, address and tax registration number, and the customer's name and address.
- The number and date of the original invoice.
- A description of what's credited, with the quantity and amount for each item.
- The reason, such as “3 banners returned, misprinted”. HMRC requires your records to show it.
- The total credited before tax, the tax rate and the tax credited, at the rate that applied to the original sale.
- How the credit will be settled: a refund, or an offset against the balance or a future invoice.
Here's how the main rules compare, as of October 2026:
- UK: the note must reflect a genuine mistake, an overcharge or an agreed price reduction. Notice 700 says to issue it within 14 days of the refund payment being made; if you offset the credit instead, issue it promptly. A credit note that doesn't adjust VAT should say “This is not a credit note for VAT”.
- EU: Article 90 of the VAT Directive lets the taxable amount fall after a cancellation or price reduction, on conditions each member state sets. Article 220a, added in 2010, generally lets a credit note be a simplified invoice, but Article 226b says it must still refer to the original and the details changed.
- India: under section 34 of the CGST Act, a credit note covers grounds such as an overcharge, returned goods or deficient goods or services. It must be declared by November 30 after the end of the supply's financial year, or the annual return date if earlier. Since October 2025, the supplier can cut its output tax only if a registered buyer has reversed the matching input tax credit. Rule 53 requires the original invoice's number and date.
This is general information, not tax advice. Rules vary by country and change, so check with your tax authority or an accountant. For the other details a VAT or GST invoice needs, see what makes a tax invoice valid.
Credit invoice example: a partial credit, worked through
Fernhill Print Co. sends Bluegate Events Ltd invoice INV-2026-0118, dated October 5, 2026: 12 fabric banners at $200.00 each, so $2,400.00 plus 10% tax of $240.00, or $2,640.00 in total. Three banners arrive misprinted, and Bluegate returns them on October 12. Fernhill issues this credit note two days later:
Credit Note
No. CN-2026-0007
Issue date: October 14, 2026
Original invoice: INV-2026-0118
Invoice date: October 5, 2026
Fernhill Print Co.
27 Mill Lane, Riverton
Tax ID: FP-4471-209
Bluegate Events Ltd
9 Quay Street, Riverton
| Description | Qty | Unit price | Amount |
|---|---|---|---|
| Fabric display banner, 2 m × 1 m (invoice line 1), returned misprinted | 3 | $200.00 | $600.00 |
Reason: 3 of the 12 banners on invoice INV-2026-0118 were returned on October 12, 2026 with a print defect. This credit reduces the balance of INV-2026-0118 to $1,980.00. No payment is due on this credit note.
Check the math:
| Document | Before tax | Tax (10%) | Total |
|---|---|---|---|
| Invoice INV-2026-0118 | $2,400.00 | $240.00 | $2,640.00 |
| Credit note CN-2026-0007 | −$600.00 | −$60.00 | −$660.00 |
| Net sale (9 banners) | $1,800.00 | $180.00 | $1,980.00 |
Fernhill reduces its sales by $600, its tax payable by $60 and Bluegate's balance by $660. Bluegate records the mirror image: lower purchases, lower reclaimable tax and less owed. Had Bluegate already paid in full, Fernhill would refund the $660 or hold it as a credit for the next order, and confirm which in writing.
Crediting part of an invoice works when most of it was right. When the core details are wrong, such as the client's name, credit the whole invoice and issue a new one.
How to issue a credit note, step by step
- Agree the correction with the client: what's credited and why.
- Take the next credit note number and today's date. Never backdate it to the invoice.
- Quote the original invoice and credit the exact lines at the original prices and tax rate.
- State the reason and how the credit will be settled.
- Send it as a PDF, saying what's still due, then update the invoice balance and your tax records.
- Issue any replacement under your next invoice number, in the same invoice template so the client can match them.
Need to send a corrected invoice? Invoicious lets you duplicate an existing invoice on iPhone or iPad, fix what was wrong, and send the new one as a PDF by email, Messages or another app.
Get Invoicious freeUndercharged? Debit notes and supplementary invoices
A credit note only reduces. If you charged too little, such as a missed line or an agreed price rise, bill the difference with a supplementary invoice or a debit note. Both are new documents for the extra amount that quote the original invoice.
- UK: a valid debit note reflects a genuine undercharge or an agreed increase and is issued within 14 days of agreeing it. You owe the correct VAT whether or not you bill the client for it. A credit note or supplementary invoice that fixes a VAT error should show both the correct and incorrect VAT.
- India: section 34 requires a debit note when the value or tax charged was too low, and says a debit note includes a supplementary invoice. Only the supplier issues these under GST, so a “debit note” from a buyer is a request for credit, not a GST document.
Say you invoiced 10 hours at $90 but worked 12. Send a supplementary invoice for 2 hours, $180 plus tax, that quotes the original invoice's number and date.
Duplicate invoice: a copy or a double charge?
“Duplicate invoice” can mean three different things, and each needs a different fix.
A duplicate copy
If a client loses an invoice, send a copy with the same number, date and amounts, clearly marked “Duplicate” or “Copy”. HMRC's manual says to mark a replacement copy as a duplicate, since a second copy risks the customer reclaiming the same VAT twice. Don't give it a new number: it's the same sale.
In India, Rule 48 of the CGST Rules requires a goods invoice in triplicate, marked “ORIGINAL FOR RECIPIENT”, “DUPLICATE FOR TRANSPORTER” and “TRIPLICATE FOR SUPPLIER”, and a services invoice in duplicate. These copies aren't required for e-invoices that carry an Invoice Reference Number (IRN).
Duplicate billing
You sent two invoices for the same work. Keep the first and cancel the second: void it if the client hasn't recorded or paid it and your rules allow, or issue a credit note for its full amount that quotes its number and date. Then tell the client which invoice to pay.
Duplicate payment
The client paid one invoice twice. The invoice was right, so no credit note is needed. Refund the extra money or hold it as a credit against their next invoice, and confirm which in writing. The original still counts as a paid invoice with a zero balance.
What does “reverse invoice” mean?
The term has no single meaning, so ask which one is meant:
- Reversing an invoice: canceling it in full with a credit note for the whole amount. Some accounting software calls this a reversal.
- A reverse charge invoice: under VAT, the customer accounts for the tax instead of the supplier, as with many business-to-business services bought from another EU country. The invoice charges no VAT and must say “Reverse charge” (Article 226, point 11a of the EU VAT Directive, added in 2010).
- Self-billing, sometimes called reverse billing: the customer prepares the supplier's invoice and sends the supplier a copy. In the EU, such invoices must be marked “Self-billing” (Article 226, point 10a).
