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Credit Note Template
How to Issue One Correctly (+ Free Template)

📅 May 2026·🕐 6 min read

A credit note (also called a credit memo) is a document that reduces or cancels a previously issued invoice. You issue one when there's an overcharge, a return, a discount applied after the fact, or a cancelled order. Here's everything you need to know, plus a free template.

📥 Free Credit Note Template

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What is a credit note?

A credit note is a formal document issued by a seller to a buyer that reduces the amount owedon a previously issued invoice. It's essentially the opposite of an invoice — instead of requesting payment, it acknowledges that money is owed back (or that a debt has been reduced).

Example: You invoice a client for £2,000. They point out you over-charged by £300. Instead of voiding the invoice (messy for accounting), you issue a credit note for £300. The net amount due becomes £1,700.

When should you issue a credit note?

💰Overcharge

You accidentally billed too much

🔄Return / refund

Client returned goods or service wasn't delivered

🏷️Discount applied late

You agreed a discount after invoicing

❌Cancelled order

Order cancelled after invoice was issued

🐛Error correction

Wrong item, quantity, or price on invoice

⚖️Dispute settlement

Agreeing to reduce amount to resolve a dispute

What must a credit note include?

✓

The words 'Credit Note' — Clearly identified at the top

✓

Unique credit note number — Sequential, e.g. CN-2026-001

✓

Date of issue — When you issued the credit note

✓

Reference to original invoice — e.g. 'Credits invoice INV-2026-047'

✓

Your business details — Name, address, VAT number

✓

Client's details — Name and address

✓

Description of credit reason — e.g. 'Overcharge on design work — correction'

✓

Amount credited — Net amount and VAT separately if VAT-registered

✓

Total credit amount — Including any VAT adjustment

Credit note numbering

Credit notes need their own sequential numbering — separate from invoices. Common formats:

CN-2026-001

CN prefix + year + number

CR-001

CR prefix + number

CREDIT-2026-001

Full word + year

VAT on credit notes

If you're VAT-registered, credit notes must show the VAT adjustment. HMRC requires that both you and your client adjust your VAT records accordingly.

Example VAT credit note:

Original invoice: £2,000 + £400 VAT = £2,400

Error: £300 overcharge

Credit note net: -£300

Credit note VAT (20%): -£60

Total credit: -£360

Credit note vs refund — what's the difference?

Feature	Credit Note	Refund
Money movement	No cash changes hands (reduces debt)	Cash paid back to client
Used when	Client will buy again / ongoing relationship	Client needs money back immediately
Accounting	Reduces accounts receivable	Increases accounts payable
VAT handling	VAT adjustment document required	VAT adjustment may be required
Common in	B2B ongoing relationships	B2C, one-off transactions

FAQ — credit notes

Can I just void the original invoice instead?

For tax purposes, you should never delete or void a sent invoice — this can cause issues with HMRC/tax authority. Issue a credit note instead to maintain a clear audit trail.

Do credit notes expire?

There's no legal expiry, but credit notes applied to future invoices should be used within a reasonable time (most businesses use 12 months). State any validity period on the credit note.

Do I need a credit note for a partial refund?

Yes. A partial credit note reduces the original invoice by the refunded amount. Include the reference to the original invoice and clearly state 'Partial credit'.

What if the original invoice was already paid?

You can still issue a credit note. The credit can be applied as a discount on a future invoice or refunded as cash — state which on the credit note.

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How to write an invoice →VAT invoice requirements →Overdue invoice email templates →Invoice discounting explained →

Credit Note TemplateHow to Issue One Correctly (+ Free Template)