Credit notes: how to correct or cancel an invoice you've sent

When you need a credit note, and why the invoice stays

Once an invoice has gone out, it no longer lives only in your records. Your client may have entered it in their books, paid it or claimed back the VAT on it, so changing your own copy changes nothing on their side. A credit note is the document that puts things right: it names the invoice it corrects, takes back all or part of it as negative amounts, and sits next to the original in both sets of books, so that together they show what the client really owes. An invoice is a request for payment; a credit note reduces or cancels a request you've already made.

The document has other names. In the United States it's usually a credit memo, in Australia an adjustment note and in Germany a Rechnungsberichtigung (also Rechnungskorrektur), while New Zealand's GST rules now call it supply correction information (formerly credit note or debit note). They all do the same job, though one German word is a trap: a Gutschrift means something else in German VAT law, as the section on Germany below explains.

A credit note is the standard way to put right an invoice you've already sent that asks for the wrong amount or shouldn't have been sent at all. The usual reasons are a mistake in the price, the quantity or the VAT, goods the client sent back, a discount agreed after you invoiced (say, because a delivery was late), a job cancelled after it was invoiced, and an invoice addressed to the wrong client. In every case the original was a real document on the day you sent it, and the credit note records what changed afterwards. If nobody has seen the invoice yet, you don't need one, because a draft that never left you can simply be corrected. Once it has gone out, a few countries' tax rules let you skip the credit note in particular cases, for example an agreed price cut with a VAT-registered client that leaves the VAT unchanged in Ireland, as the country sections below explain.

Editing a sent invoice, or deleting it and starting again, leaves your books and your client's telling different stories. Your copy would no longer match theirs, your numbering would have a gap or a number standing for two different documents, and any VAT the client reclaimed on the original would still be reclaimed. A credit note adds a second dated, numbered document instead of rewriting the first, so your client, your accountant and the tax office can all follow what happened; the guide to invoice numbers explains why that unbroken series matters. This is sound practice rather than a rule every country spells out, and it's what the maker enforces: a finalised invoice can't be edited or deleted.

What goes on a credit note: an example

A credit note looks much like an invoice, because it's built from one. It has its own number and date, your details and your client's as they were on the invoice, and the lines you're crediting with their quantities, prices and VAT, all as negative amounts. Two things set it apart: it names the invoice it corrects by number and date, and it doesn't ask for payment. A short reason, such as "2 hours not used, as agreed on 14 October", helps your client's bookkeeper match it up and is a required detail in some countries.

Say you invoiced a client for logo design on invoice 42, dated 3 October 2026: 10 hours at £60.00, plus VAT at 20%. The table shows that invoice next to the two kinds of credit note you might send against it.

A full credit cancels the invoice: every line comes back negative, and the invoice and the credit note add up to zero. You'd use it when the job was cancelled or the invoice went to the wrong client, followed in the second case by a new invoice to the right one. A partial credit takes back only part, so if the client agreed afterwards to pay for 8 hours instead of 10, you credit 2, and the invoice (£720.00) and the credit note (−£144.00) together come to £576.00, exactly what 8 hours plus VAT would have cost. That's what the negative amounts are for: anyone adding up the two documents, VAT included, arrives at the true figure without either one having been changed.

What happens next depends on whether the client has paid. If they haven't, they pay the invoice minus the credit, which is £576.00 in the partial example and nothing after a full credit. If they have, you either refund the credited amount or set it against your next invoice so they pay that much less next time; agree which with the client and say so in the credit note's notes. When the original was wrong from top to bottom, such as the wrong client or a wrong rate on every line, a full credit followed by a fresh invoice with a new number is usually clearer than a string of partial corrections.

Credit note rules in each country

The idea is the same everywhere, but the name, any deadline and the details the document must show depend on the country. Most of the rules are VAT or GST rules, which exist to make sure the tax you declared on the sale and the tax your client reclaimed go down by the same amount. For the UK and Australia the official list of contents is printed in full so you can check your credit note against it; for Ireland, Canada and New Zealand the section describes what the official list asks for, and for Germany and the United States it explains what the rules expect.

United Kingdom

In the UK the document is a credit note, and HMRC, the UK tax authority, ties it closely to VAT. A credit note corrects a VAT invoice already issued, after a genuine mistake or overcharge or an agreed price reduction, and must give the customer real value, as a refund or an offset against future supplies. A supplier that refunds a price reduction on a supply for which it had to issue a VAT invoice must give the customer a credit note within 14 days of the refund, at the VAT rate of the original supply; both sides then adjust their VAT, unless the customer can reclaim it all and both agree not to. If an invoice shows too much VAT, the supplier owes the higher amount unless it issues a credit note.

Two points in that rule are easy to misread. The deadline in it applies when you refund a price reduction on a sale that needed a VAT invoice, not to every credit note you write. And if your invoice showed too much VAT, the credit note is what stops you owing the extra, so it's worth sending promptly. HMRC lists the details a credit note has to show, and you can check yours against them:

• Identifying number of the credit note
• Date of issue
• Supplier's name, address and VAT registration number
• Customer's name and address
• Description identifying the goods or services credited
• Quantity and amount for each description
• Total amount credited, excluding VAT
• Rate and amount of VAT credited, in sterling
• Number and date of the original VAT invoice or invoices (if returned goods can't be matched to an invoice, the supplier must be able to show HMRC by other means that VAT was accounted for on the original supply)
• When it corrects a VAT error: both the correct and the incorrect amounts of VAT
• Credits for zero-rated or exempt supplies totalled separately, with a clear statement that no VAT credit has been allowed for them
• If the credit note is issued without a VAT adjustment: the statement 'This is not a credit note for VAT'

The maker fills in most of these from the invoice, including the original invoice's number and date, but three items need your attention. If you're correcting a VAT error, add the VAT shown on the invoice and the correct VAT in the notes. If any credited lines were zero-rated or exempt (no VAT charged), add the statement that no VAT credit has been allowed for them, and if no VAT is being adjusted at all, for example because your client can reclaim all of it and you both agree not to adjust it, the credit note must say 'This is not a credit note for VAT'. The rules for the invoice itself are on the UK invoice page.

Ireland

Revenue, Ireland's tax authority, calls the document a VAT credit note. If the price on a VAT invoice is later reduced or a discount is allowed, the supplier must issue a VAT credit note, and a customer that is an accountable person reduces its VAT deduction by the VAT shown on it. If a lower VAT rate turns out to apply than the one invoiced, the invoice is treated as reduced to nil: the supplier issues a credit note and then a new invoice. No credit note is needed if the supplier and a VAT-registered customer agree a price cut that leaves the invoiced VAT unchanged, unless the supplier accounts for VAT on the moneys-received basis.

The middle rule is the one that catches people out: if you invoiced at too high a VAT rate, you don't credit just the difference but the whole invoice, and then send a new one at the right rate. The exception at the end doesn't apply if you account for VAT on the moneys-received basis, meaning you account for VAT when your clients pay you rather than when you invoice. Revenue also sets out what a VAT credit note must contain.

Its list is close to the UK one above: the credit note's own unique number and date of issue, your full name, address and VAT registration number, your client's full name and address, a cross-reference to the original invoice, the amount credited excluding VAT (which Revenue calls 'the amended consideration') and the VAT at each rate. It also asks for a few things more. Your client's VAT registration number has to be on it (for an intra-Community supply, meaning goods sold to a business in another EU country, the client's VAT number there), along with the reason you're issuing the credit note and the VAT rate or rates in force when the original invoice was issued, with euro figures as well if the credit note is in another currency. The maker copies the client, the lines and their VAT rates from the invoice and adds the reference to it, so most of this is done for you. Put the reason for the credit note in the notes, together with your client's VAT registration number if it isn't already on the PDF.

United States

In the United States the document is usually a credit memo, and the rules are light. No national rule says when a credit memo must be issued or what it must show; some states have sales tax rules on refunds and credits. In Texas, a seller that collected sales tax in error can get it refunded by the Comptroller only after refunding it to the buyer or crediting it with the buyer's written consent (Form 89-123, 'Credit Memo Acceptance'). In California, returned goods are left out of the amount sales tax is computed on if the full price, including the sales tax, is refunded in cash or credit without making the customer buy pricier goods.

Outside such state rules, what a credit memo shows is up to you and your client. A memo that names the invoice it corrects and shows what's being credited, including any sales tax, gives your client's accounts team what they need to match it up. If you collect sales tax in several states, check how each one treats refunds and credits before you reverse tax on a memo.

Canada

Canada's GST/HST rules speak of a credit note (the customer may issue a debit note instead). A business that refunds, credits or adjusts GST/HST for a customer, because it charged too much tax or the price was later reduced (for example for returned goods or a volume discount), must issue a credit note with the prescribed information within a reasonable time, unless the customer issues a debit note. The supplier can deduct that tax, if it had already reported it, in the period in which it issues the note, and a customer that claimed an input tax credit adds it back in the period in which it receives the note. No credit note is needed if a price is reduced without refunding or crediting GST/HST, but then no GST/HST adjustment is made either.

Giving the GST/HST back is your decision, and the note follows from it: once you refund or credit the tax, you issue the note, and it's what lets you deduct that tax, if you'd already reported it, in the period you issue it. If your client sends you a debit note for the adjustment instead, you don't need to issue a credit note as well. The prescribed information is short: a statement that the document is a credit note, your name or trading name and your GST/HST registration number, your client's name or trading name, the date you issue it, and the amount of GST/HST refunded or credited, or instead a statement that the total includes the tax, with the rate and the amounts reduced. A credit note from the maker is headed as one, is made out to the same client and shows the tax at negative amounts, so with your GST/HST number in your business details it covers the whole list.

Australia

In Australia the document is an adjustment note. An adjustment note is needed when an adjustment event, such as a cancelled sale, a price change (for example a discount), returned goods, or a sale becoming or ceasing to be taxable, changes the GST on a taxable sale. The supplier must give it within 28 days after the buyer asks or, if it has issued a tax invoice (or was asked for one), within 28 days after becoming aware of the adjustment; if tax invoices for the sale would be recipient-created, the buyer issues it. A decreasing adjustment can be claimed in a GST return only once the adjustment note is held; neither rule applies to decreasing adjustments of $75 or less.

An adjustment event is simply something that happens after the sale and changes the GST on it. Tax invoices are "recipient-created" when, by agreement, your customer writes them for you, which is why the customer then issues the adjustment note too. The Australian Taxation Office (ATO) lists what an adjustment note must contain:

• An indication that the document is intended to be an adjustment note
• Whether the effect of the adjustment is positive or negative
• The identity of the supplier (or the supplier's agent), including its ABN
• The identity or ABN of the buyer (or the buyer's agent or another member of its GST group) if the related tax invoice showed a total price of at least $1,000, or if a sale that was not taxable became taxable and its price is at least $1,000
• The issue date of the adjustment note
• A brief explanation of the reason for the adjustment
• The amount of the adjustment to the GST payable, or, where GST is 1/11 of the price, a statement making clear that the price difference includes GST
• The difference between the price before and after the adjustment event, if there is one

The maker's English PDF is headed credit note, so for an Australian adjustment add the words "Adjustment note" and the reason for the adjustment in the notes. The negative amounts show that the effect is negative, but saying so in words as well removes any doubt. The rules for the tax invoice itself are on the Australia page.

New Zealand

In New Zealand's GST rules the document is now called supply correction information (formerly credit note or debit note). For taxable periods starting on or after 1 April 2023, credit and debit notes were replaced by 'supply correction information', which a seller must provide to correct an error in the original taxable supply information or a filed return (for example after a cancelled order, returned goods or a wrong GST rate), even if the buyer has paid. It can take the form of cancelling the incorrect invoice and issuing a correct one, and goes in the GST return for the period in which it was provided. It is not needed when a correction results from a discount or rebate whose terms were agreed in writing or set out in the taxable supply information.

The old names are still common in everyday business, but what Inland Revenue, New Zealand's tax authority, looks at is the information the document carries and the return it goes in. The exception covers cases such as a discount for paying early that was already printed on the invoice. A finalised invoice can't be cancelled outright in the maker, so the nearest equivalent there is a full credit note followed by a new invoice.

The information Inland Revenue asks for is short: your name or trade name, your GST number, the date you provide the correction, details that identify the original information, such as the invoice number, and the correction itself, including any change to the GST charged. A credit note from the maker names the invoice it corrects by number and date and shows the credited amounts with their GST, so with your GST number in your business details it covers the list, as long as you date it the day you send it.

Germany

In Germany the correction is a Rechnungsberichtigung (also Rechnungskorrektur), in English an invoice correction. If the price of a taxable supply changes afterwards (for example a cash discount, a reduction for defects or a reversed supply), the supplier corrects its VAT and the business customer its input VAT for the period of the change, without having to correct the original invoice. An invoice with missing or wrong details is corrected, as a rule by its issuer, with a document that refers specifically and unambiguously to it (normally by its number) and meets the formal rules for invoices. VAT shown too high on an invoice stays owed until the customer actually receives a specific written correction and, if it already paid and is owed money back, the excess is repaid.

That rule separates two cases. When only the price changes afterwards, both of you adjust the VAT for the period of the change and the invoice itself can stay as it is, although a correction document still tells your client what to book. When the invoice itself was wrong, the correction must point to it unmistakably, normally by its number, and if you showed too much VAT you keep owing it until your client has actually received the correction and been repaid any excess, so send it rather than just filing it.

The word on the document matters too. In German VAT law a 'Gutschrift' is an invoice issued by the customer for the supplier's supply under a prior agreement (self-billing), and it must carry the word 'Gutschrift'. The cancellation or correction of an original invoice, which everyday language also calls a 'Gutschrift' (a 'kaufmännische Gutschrift', commercial credit note), is not a Gutschrift in the VAT sense; using the word on such a document does not by itself make the issuer owe the VAT shown under § 14c UStG. So head a correction Rechnungskorrektur, as the maker's German PDF does, rather than Gutschrift, which your client's bookkeeping could mistake for self-billing.

E-invoicing is the other point to watch in Germany. Every business has had to be able to receive e-invoices (EN 16931 formats such as XRechnung or ZUGFeRD from version 2.0.1) since 1 Jan 2025, while issuing them for domestic B2B sales becomes mandatory on 1 Jan 2027 (previous-year turnover above €800,000) or 1 Jan 2028 (everyone else), with small businesses under § 19 UStG and invoices up to €250 exempt from issuing. A correction has to meet the same formal rules as an invoice, so once you must issue e-invoices for your domestic sales to businesses, a Rechnungskorrektur to a German business client has to be an e-invoice too. The maker's PDF is not an e-invoice (no XRechnung or ZUGFeRD), so from then on it only suits corrections that don't need one, such as those to private customers.

Making a credit note in the invoice maker

The maker creates credit notes from finalised invoices, because those are the ones your client has. An invoice is finalised when you send it from the maker by email or as a link, when you mark it as sent or paid, or when you choose Finalise… and confirm. From then on it can't be edited, deleted, switched to another document type or restyled, and it keeps the business and client details it was issued with, though you can still mark it paid, re-send it or duplicate it. Downloading or printing the PDF doesn't finalise anything, so if you downloaded an invoice and emailed it yourself, mark it as sent first.

Open the invoice and choose Create credit note. You get a credit note with its own number from a separate series (CN-1, CN-2 …), so your invoice numbers carry on without a gap, made out to the same client with every line copied at a negative amount. Its PDF carries the line "This credit note corrects invoice [number] of [date]." with the invoice's number and date, and no payment request. For a full credit you leave the lines alone; for a partial credit you remove the lines you aren't crediting and reduce quantities or prices, like the 2 hours in the example. The notes are the place for the reason and for anything your country asks for that the maker doesn't add, such as the correct and incorrect VAT in the UK or the words "Adjustment note" in Australia.

Then check it and finalise it the same way as an invoice, after which it can't be changed either. It's listed with your invoices, and its negative amounts count in the totals, the quarterly VAT summary and the CSV export for your accountant, so the reduction shows up in your figures. Credit notes never count toward the free account's monthly limit, and you don't need a separate credit note template: in US English the document is headed credit memo, and it's translated into all 20 invoice languages, German included, where it's a Rechnungskorrektur.

If the client also needs a corrected invoice, duplicate the original. That gives you an editable copy in which you fix what was wrong, whether the client, the rate or the price, and send it as a new invoice. The maker keeps no change history, so the finalised invoice, the credit note and the new invoice together are your record of what happened.