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Credit Note Template

A credit note (also called a credit memo) is the document a supplier issues to reduce the amount charged on an invoice that has already been sent: goods were returned, the customer was overcharged, part of a service was cancelled, or a discount was agreed afterwards. The original invoice stays as it is. The credit note gets its own number and date, quotes the original invoice, explains the reason, lists what is being credited and shows the tax reversed on it. The customer then either owes less, receives a refund or uses the credit against a later invoice. It is the opposite of a debit note or supplementary invoice, which add to an amount already invoiced. This editable HTML template has fields for the credit note number, issue date, original invoice reference and date, reason, credited lines, tax credited, total credit, how the credit is settled and the balance left on the original invoice. Fill it in your browser, then print it or save it as PDF.

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Download the HTML file to edit its fields, then print or save as PDF. Totals are entered manually.

What This Template Includes

  • Credit note number
  • Issue date
  • Original invoice reference
  • Original invoice date
  • Reason for credit
  • Credited items
  • Tax adjustment
  • Credit total
  • Settlement: refund, offset or credit on account
  • Balance remaining on the original invoice

How to Create Your Credit Note

  1. 01

    Describe your work

    Type a plain English description of the services you provided, the client, and the amount.

  2. 02

    AI generates your invoice

    InvoiceQuickly's AI drafts the client, line items, dates, and totals for you to review before saving.

  3. 03

    Review, download, and send

    Check every detail, download the PDF, or use Pro to email the PDF directly to your client.

Recommended Payment Terms

A credit note does not ask for payment; it says how the credited amount will be settled. If the original invoice is still unpaid, the credit reduces the balance and the customer pays the difference. If it has been paid, either refund the credit or agree in writing that it will be offset against the next invoice, and say which on the credit note: 'Refunded by bank transfer on 9 October 2026' or 'To be deducted from your next invoice.' Timing matters for VAT: in the UK, HMRC says a credit note for a refund must be issued within 14 days of the refund being paid. Customers often show the deduction on a remittance advice when they pay a later invoice, so quote the credit note number there too.

Need help writing payment terms? Read our guide to invoice payment terms for best practices and templates.

Tax Information

A credit note reverses tax in proportion to the amount credited, at the rate that applied to the original supply. In the UK, HMRC's VAT Notice 700 (paragraph 18.2.3) says a valid credit note must reflect a genuine mistake, overcharge or agreed reduction, give real value to the customer, and show its number and date, the supplier's name, address and VAT registration number, the customer's name and address, a description and quantity of what is credited, the total credited excluding VAT, the rate and amount of VAT credited in sterling, and the number and date of the original VAT invoice. If you issue a credit note without a VAT adjustment, it should say 'This is not a credit note for VAT'. Where it is not correcting an error already declared, the adjustment belongs in the VAT period in which the refund is paid. In India, credit notes for GST are governed by section 34 of the CGST Act. In the US there is no VAT; if sales tax was charged, refund or credit the tax on the credited amount and follow your state's rules for adjusting your return. This is general information, not tax advice.

Industry context (2026)

Most VAT and GST systems treat a credit note as the formal way to reduce a supply that has already been invoiced, rather than editing the invoice. In the UK, HMRC's VAT guide (VAT Notice 700, last updated 25 June 2026) sets out the conditions in paragraph 18.2.3: the credit must reflect a genuine mistake, overcharge or agreed reduction, it must give value to the customer as a refund or an offset against future supplies, and a credit note for a refund must be issued within 14 days of the refund being paid. Paragraph 18.2.5 says the VAT rate used is the one in force at the tax point of the original supply, and HMRC states it will not make any repayment where credit notes do not meet the 18.2.3 conditions. The same section covers debit notes, which work the other way: they must be issued within 14 days of an increase being agreed. In India, both credit and debit notes are governed by section 34 of the Central Goods and Services Tax Act, which is why InvoiceQuickly's supplementary invoice and debit note templates quote it. In the US, where there is no VAT, 'credit memo' is the usual name and the rules come from your accounting practice and, for sales tax, your state.

Worked example

Worked example (UK, VAT at 20%): Brightside Training Ltd, a VAT-registered course provider, issues invoice INV-0231 on 3 September 2026 to Halden Logistics for 12 delegate places on a two-day course at £350 each: £4,200.00 plus VAT £840.00, total £5,040.00. Halden pays in full on 30 September. On 6 October two delegates cancel within the free-cancellation window in Brightside's terms, and Brightside agrees to refund their places. It pays the refund of £840.00 on 9 October and, within 14 days, issues credit note CN-0236 dated 12 October 2026. CN-0236 shows Brightside's name, address and VAT number; Halden's name and address; 'Original invoice INV-0231 dated 3 September 2026'; reason 'Two delegate places cancelled within the free-cancellation period'; credited line: delegate place, 2 at £350.00 = £700.00; VAT credited at 20%: £140.00; total credit £840.00; settlement 'Refunded by bank transfer on 9 October 2026'; balance remaining on INV-0231: £0.00. Check: INV-0231 less CN-0236 leaves £3,500.00 net and £700.00 VAT, which is 20% of £3,500.00 for the 10 places delivered. Because the credit is not correcting an error already declared, Brightside reduces its output VAT in the VAT period that includes 9 October, when the refund was paid. INV-0231 itself is not changed.

Common mistakes to avoid

Editing the original invoice

Changing an invoice the customer already has breaks both sets of records and the tax trail. Leave it alone and issue a credit note for the difference.

Crediting the net amount but not the tax

If the invoice charged VAT or sales tax, the credit note must reverse tax on the credited amount at the original rate. Otherwise your return overstates output tax and the customer's input tax claim is wrong.

No reference to the original invoice

Without the original invoice number and date, the customer cannot match the credit and HMRC may not accept it. Quote both.

Not saying how the credit is settled

A credit note that does not say 'refunded' or 'offset against your next invoice' leaves the customer unsure whether to expect money. State the settlement.

Issuing it too late

In the UK a credit note for a refund must be issued within 14 days of the refund being paid. Issue it when the refund goes out, not at year end.

Invoicing Tips

  • 1Never edit or delete an invoice that has been sent. Issue a credit note for the reduction so both sets of records still match.
  • 2Quote the original invoice number and date on every credit note, and keep the two documents filed together.
  • 3Credit tax at the original rate, in the same proportion as the net amount, not a round figure.
  • 4Give each credit note its own identifying number. A separate CN series is common; in InvoiceQuickly new credit notes use a CN- prefix with their own counter.
  • 5Say how the credit is settled: refunded (with date and method), deducted from the open balance, or held against a future invoice.
  • 6Use a credit note for a partial reduction too. You do not need to cancel and reissue the whole invoice to correct one line.

Related Resources

Frequently Asked Questions

What is a credit note?

A credit note is a document a supplier issues to reduce the amount of an invoice already sent, because of a return, an overcharge, a cancellation or a discount agreed afterwards. It has its own number and date, quotes the original invoice, and shows the amount and tax being credited.

When should I issue a credit note?

Issue one whenever the amount on a sent invoice needs to go down: goods returned, services not delivered, a pricing or quantity error, or a discount agreed after invoicing. If the invoice was never sent, correct the draft instead.

What is the difference between a credit note and a refund?

A credit note is the document that reduces what was charged. A refund is the money paid back. A credit note may lead to a refund, or it may simply reduce an unpaid balance or be set against a future invoice.

What is the difference between a credit note and a debit note?

A credit note reduces the amount a customer owes; a debit note or supplementary invoice increases it, for example after an undercharge. Both quote the original invoice and leave it unchanged. Some buyers also send a 'debit note' to ask the supplier for a credit note, so label the document clearly.

Is a credit note the same as a credit memo?

Yes. 'Credit memo' or 'credit memorandum' is the common US term, and 'credit note' is used in the UK, India, Australia and most VAT and GST countries.

Does a credit note need its own number?

Yes. HMRC requires an identifying number and date for a valid UK credit note, and most businesses number credit notes in a sequence so they can be traced. Many use a CN- prefix to tell them apart from invoices.

Can InvoiceQuickly create credit notes?

Yes, on Pro. Open a sent invoice, enter the credit amount and the reason, and InvoiceQuickly creates a credit note with a CN- number from its own counter, quotes the original invoice number and reduces that invoice's balance. It creates one credit line with no separate tax breakdown, and saved business tax IDs print on new documents, so if your tax authority requires the VAT credited and your registration number on the credit note, include them in the reason or use this template.