What is a credit note?
A credit note is a document issued by a seller to a buyer that reduces the amount owed on a previously issued invoice. It’s the standard way to correct an invoice without altering the original — whether the reason is returned goods, a pricing error, or a negotiated discount applied after the fact.
Credit notes are a fundamental part of B2B accounting in the UK. They maintain a clean audit trail: the original invoice stays on record, and the credit note formally adjusts the balance. This matters for VAT reporting, bookkeeping, and resolving disputes.
The US equivalent is a credit memo. The documents serve the same purpose — the terminology is the only real difference.
What should a credit note include?
A properly structured credit note covers:
- Header: The words “Credit Note” prominently displayed, a unique credit note number, and the date of issue
- Seller Details: Your company name, address, contact details, and VAT registration number (if applicable)
- Buyer Details: The customer’s name, address, and account reference
- Original Invoice Reference: The invoice number and date being credited — this is essential for reconciliation
- Reason: A clear description of why the credit note is being issued (e.g., “Goods returned — faulty”, “Price adjustment per agreement”)
- Line Items: The items or services being credited, with quantities, unit prices, and line totals
- VAT Breakdown: If VAT-registered, show the VAT rate and amount being credited
- Total Credit: The total amount being credited to the buyer’s account
Last updated: March 2026