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HMRC internal manual

VAT Traders’ Records Manual

HM Revenue & Customs
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Credit and Debit notes: Dealing with problem cases: Scenario 1

Credit note issued by supplier, but no value/benefit given to customer. (The supplier will probably adjust the output tax but the customer may not adjust his input tax, because no value has been given); or,

Credit note issued by supplier but not properly actioned, or ignored by customer.

Action will depend on the underlying supply position. Both situations might indicate that there has not been a genuine increase or decrease in the consideration for the supply, especially if value has not been given.

  • If there has not been a genuine change to the original supply, but output tax has been adjusted, the supplier should be assessed for the output tax.
  • If enquiries reveal that the credit note does evidence a genuine decrease in consideration, you may assess to recover the non-adjusted input tax from the customer.