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’.