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This guide explains the details of what you need to do when you issue or receive a credit note or a debit note.
If you return goods to a supplier for a full or partial credit, or if a customer returns goods to you for a full or partial credit, you must adjust the VAT on the transaction by replacing the invoice, or issuing a credit or debit note as appropriate.
If you replace returned goods with goods of lesser or greater value, you must adjust the VAT on the transaction by issuing a credit note or supplementary invoice. If you replace returned goods with goods of the same value, you do not need to issue another VAT invoice.
If you obtain a credit note or issue a debit note, you must record this in your records. On your next VAT return, you must deduct the VAT on the credit or debit note from the amount of VAT you reclaim or pay as appropriate.
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If you have returned goods to the seller for a full or partial credit you have three options:
If you issue a debit note or receive a credit note, you must:
If you receive returned goods from a customer, you have three options:
If you issue a credit note or receive a debit note, you must:
If you exchange returned goods for replacement goods that are worth less than the original goods, you must issue a credit note to your customer for the difference in value.
If you exchange returned goods for replacement goods that are worth more than the original goods, you must account for the additional VAT by issuing an additional VAT invoice.
If you exchange returned goods for replacement goods that are worth the same as the returned goods, you can either let the original VAT charge stand, or you can cancel the original invoice by issuing a credit note and charge VAT on the replacement goods.
All credit notes and debit notes issued must have a reference to the number and date of the original invoice. They must also clearly show both the correct and incorrect amounts of VAT.
To be valid for VAT purposes a credit or debit note must:
A valid credit or debit note must also show:
If your VAT return needs to be adjusted for credit or debit notes that apply to a transaction that occurred in a previous VAT accounting period, HM Revenue & Customs (HMRC) considers this to be a normal VAT accounting adjustment, not an error.