Never delete an invoice you have already sent
Issue a credit note against it instead. This is the rule that catches out everyone who has only ever invoiced from a spreadsheet.
Once an invoice has gone out it exists. Your customer has it, their accounts system may already have it, and if you are VAT registered it may already be in a return submitted to HMRC. Deleting it or quietly editing it leaves a gap in your sequence and two different versions of the same document in the world. A credit note cancels the effect of the original while leaving the audit trail intact, which is what HMRC and any accountant expects to see, or your own tax authority if you are invoicing from Australia, Canada or the US.
Renumbering to close the gap is worse than the gap. A missing invoice number is a question. A resequenced set of invoices is a rewritten history.
It has to reference the original invoice
A credit note that does not say which invoice it relates to is almost useless to the person receiving it.
Their accounts payable has an open invoice on the system. To clear it they need to match your credit against it. Without the original number they cannot, so it sits unallocated, your statement disagrees with theirs, and somebody spends an afternoon on it. Put the original invoice number in the reference field and repeat it in the description of what is being credited.
Credit the specific thing, not just a round number
Line items, same as the invoice. "Credit as agreed, £400" tells nobody anything in six months.
- Overcharge. Credit the difference on the line that was wrong, and say what the right figure was.
- Goods returned or work not done. Credit those lines at the price they were invoiced at, not at today's price.
- Agreed reduction after a complaint. Say it is a goodwill or agreed adjustment. This is the one most likely to be queried later by someone who was not in the conversation.
- Cancelling the invoice entirely. Mirror every line so the credit and the invoice net to nothing.
Tax on a credit note
Credit the tax at the rate and treatment that was on the original invoice, not whatever applies today, whichever of the four markets you invoice from.
In the UK, if the original carried 20% VAT then the credit carries 20%, even if the rate has since changed. If the original was zero rated or fell under the CIS domestic reverse charge, the credit note has to follow suit and carry the same wording. A credit note that adds VAT back onto a reverse charge invoice creates a mismatch in both VAT returns, and that is exactly the kind of thing that gets picked up.
In Australia and Canada, match the original the same way. A credit note against an invoice headed "tax invoice" carries the GST that heading implies; a credit note against a plain invoice issued because you were not registered for GST must not carry those words either. In Canada, if the original invoice showed your GST/HST registration number and the tax because the sale was $100 or more, or the buyer's name and an itemised description because it was $500 or more, the credit note correcting it needs the same detail so the two documents still match. In the US there is no federal rule linking the two, but keep the same state and local sales tax rate and show it separately, the way it was shown on the original.
In the UK, adjustments are normally made in the VAT period you issue the credit note in, so the date on it matters. Do not backdate one into a return you have already filed.
Amounts are positive on the document
Enter the figures as positive numbers. The document is titled a credit note, and that is what makes it a deduction.
Putting minus signs on a page already headed "credit note" produces a double negative that confuses people, and some accounts systems will import it the wrong way round. State the amount being credited plainly and let the title of the document do its job.
A correction is a record of a mistake
No account, no email, no watermark. Your logo and company details come from your branding, and the PDF is generated on your device so the correction never reaches a server.
Common questions
Can I just delete an invoice I sent by mistake?
No. Once an invoice has gone out it exists: your customer has it, and if you are VAT registered it may already be in a return submitted to HMRC, or the equivalent already filed with your own tax authority elsewhere. Issue a credit note against it instead, which cancels its effect while leaving the audit trail intact, rather than deleting it or renumbering your sequence.
Does a credit note need to reference the original invoice?
Yes, and without it the credit is close to useless to whoever receives it. Their accounts payable has an open invoice on their system, and without the original invoice number to match against, your credit sits unallocated and your statement disagrees with theirs.
What tax rate goes on a credit note?
The rate that was on the original invoice, not today's rate, whatever you charge and wherever you invoice from. In the UK, if the original was zero rated or fell under the CIS domestic reverse charge, the credit note has to carry the same wording, or it creates a mismatch in both VAT returns. The same principle holds in Australia and Canada: a credit note should mirror the tax treatment of the invoice it corrects, including in Australia whether the original was correctly headed "tax invoice", since a document issued when you were not registered for GST must not carry those words either, credit note or not. In the US there is no federal rule tying the two together, but the credit should still follow the same state and local sales tax rate that applied on the original sale.
Should the figures on a credit note be negative?
No, enter them as positive numbers. The document is already titled a credit note, and that title is what makes it a deduction. Putting minus signs on a page already headed "credit note" produces a double negative that confuses people, and some accounts systems will import it the wrong way round.
What should I write when crediting goods that were returned?
Credit those lines at the price they were originally invoiced at, not at today's price. The same approach applies line by line: credit the specific thing being corrected, whether that is an overcharge, a returned item, or an agreed goodwill reduction, rather than one round number with no explanation.
When should I use a credit note to cancel an invoice entirely?
Mirror every line of the original invoice so the credit and the invoice net to nothing. This is the cleanest way to cancel a wrong invoice completely while keeping both documents on record for HMRC and your own accounts.
Does a Canadian credit note need the same detail as the original invoice?
Yes, and it follows the same tiers. If the original invoice was $100 or more it should have carried your GST/HST registration number and the tax, and the credit note needs to carry the same. If the original was $500 or more it should also have shown the buyer's name and an itemised description, and the credit note crediting it needs those too, so your customer can match the two documents and still support their input tax credit claim after the correction.