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HMRC internal manual

VAT Traders’ Records Manual

Credit and Debit notes: What are the conditions of a valid credit note?

Case law lays down the basic principles to be used in determining the acceptability of a credit note as evidence to support adjustments to the VAT account. VATREC13120 gives details of some of the key cases.

The impact of case law is that for a credit note to be valid it must:

  • be issued to the customer;
  • correct a genuine mistake or overcharge;
  • reflect an agreed reduction in the value of a supply;
  • give value to the customer;
  • not be issued for a bad debt; and
  • be issued in good faith.

HMRC also ask for credit notes to:

  • be issued within one month of discovery of the need for the credit;
  • contain all the details specified in Notice 700, Paragraph 18.2.2; and
  • be headed ‘credit note’.