What is a credit note? When to issue one, what it must say

Published 4 October 2026 · Freelancing and getting paid

A credit note is a document a seller issues to reduce or cancel an invoice it has already sent. It is the clean way to fix an overcharge, record a return or give a discount after the fact, without changing or deleting the original invoice.

When to issue a credit note

• The customer returned goods, or part of an order.
• You charged the wrong price or quantity.
• You agreed a discount or a goodwill reduction after invoicing.
• The invoice should not have been issued at all, so it is cancelled in full.

Why not just edit the invoice?

Invoices are numbered in sequence and often already sit in the customer's accounts and your tax records. Changing one after it has been sent breaks that trail. A credit note keeps the original intact and records the correction as its own numbered document, which is what accountants and tax authorities expect.

What a credit note should include

1. The words "Credit note" and its own number and date.
2. Your business name and address, and your tax number if you are registered.
3. The customer's name and address.
4. The number and date of the original invoice.
5. The reason for the credit.
6. Each credited item and amount, and the total credit.
7. Any tax being reversed, at the rate charged on the original invoice.
8. Whether the credit will be refunded or applied to another invoice.

Credit notes and sales tax or VAT

If the original invoice charged sales tax or VAT, the credit note should reverse the tax on the credited amount too, so both sides adjust what they report. In the UK, HMRC's rules say a valid VAT credit note must correct a genuine mistake or overcharge, or reflect an agreed reduction in the price; give value to the customer; and not be used for a bad debt. Other countries have their own rules, so check with your accountant.

Refund or credit?

A credit note does not move money by itself. Say on it what happens next: a refund by a set method and date, or a credit applied to an outstanding or future invoice. If you apply it, mention the credit note number on the invoice you apply it to.

Credit note, debit note and refund

A credit note reduces what the customer owes. A debit note works the other way: a buyer may send one to ask for a credit, or a seller may issue one to increase an amount already invoiced. A refund is the payment that may follow a credit note.

Free template

The free credit note template links the credit to the original invoice and lists each credited item, optional tax and the total, and lets you choose a refund or a credit against another invoice. It sits alongside the invoice, quote and payment receipt templates.

General information, not tax advice. Invoicing and VAT rules differ between countries.

Sources

• HMRC VAT Traders Records Manual VATREC13040: conditions of a valid credit note

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