Credit note, refund or void: how to correct an invoice properly

Never change an invoice after you've sent it. If nothing has been paid and the invoice shouldn't exist, void it. If the amount was too high or the client gets a reduction, issue a credit note that points back to the original. If money has to go back to the client, refund it and record that with a credit note too. Each fix leaves the original in place, so your numbers, your tax and your client's books still agree.

Why editing a sent invoice causes trouble

Your client may already have booked the invoice. Their accounts team has a number, a date and an amount in their system. If you change the PDF and resend it under the same number, two different documents now carry one number, and nobody can tell which is real.

It also breaks your own records. Tax authorities expect invoices to be numbered in sequence, and the gov.uk list of what an invoice must include starts with "a unique identification number". A sequence with edited, deleted or reused numbers is the first thing an inspector or an auditor asks about.

So the rule is simple: the original stays. You add a new document that explains the change.

Void, credit note, refund: what each one does

The three are easy to mix up, because software uses the words loosely. Here is the plain version.

A refund and a credit note usually travel together. QuickBooks puts the accounting effect plainly in its help article on credits and refunds: "Any refund or credit memo reverses the recorded income for the account by an equal amount." The credit note is the paper trail, and the refund is the money.

UK: what HMRC expects from a VAT credit note

If you're VAT registered, a credit note that adjusts VAT has rules. HMRC's manual on credit notes and VAT says a valid credit note must be issued to the customer, correct a genuine mistake or overcharge or reflect an agreed reduction, give real value to the customer, be issued in good faith and not be used for a bad debt.

VAT Notice 700, paragraph 18.2.3 lists what the credit note must show:

• its own identifying number and date of issue;
• your name, address and VAT registration number;
• the customer's name and address;
• a description of the goods or services credited;
• the quantity and amount for each description;
• the total credited, excluding VAT;
• the rate and amount of VAT credited, in sterling;
• the number and date of the original VAT invoice.

The same paragraph sets a time limit. Where money goes back, the credit note must be issued "within 14 days of the refund payment being made to the customer." And if you issue a credit note that doesn't adjust VAT (a goodwill credit on a non-VAT line, say), it should state: "This is not a credit note for VAT."

US: fewer rules, same habits

The US has no national VAT, so there's no federal rulebook for credit notes like HMRC's. You'll often see them called credit memos. The habits still matter, for three reasons:

• Sales tax. If the original invoice charged state sales tax, the correction has to show the tax reduced too, or your sales tax return won't match your sales records.
• Income. A credit or refund reduces your income for the year. Your bookkeeping should show the original invoice and the credit, not a quietly edited figure.
• Records. The IRS page on how long to keep records gives three years as the general rule, six years if income was under-reported by more than 25% and seven years for a bad debt deduction. Keep the original invoice, the credit memo and the refund record together for that long.

Which fix for which mistake

Most corrections fall into a handful of cases.

1. Sent to the wrong client or sent twice. Nothing paid: void it. Send the right invoice with a new number.
2. Wrong amount, not paid yet. Issue a credit note for the difference, or void and reissue if the whole invoice is wrong. Either way the client sees one clear balance.
3. Wrong amount, already paid in full. Issue a credit note for the overcharge and refund the difference. In the UK, if VAT is involved, issue the credit note within 14 days of the refund.
4. Client cancelled part of the work. Credit note for the dropped part. If they paid a deposit, check your contract's cancellation terms before refunding (we cover the clause in kill fees and cancellation clauses).
5. Wrong VAT rate or missing VAT number. Credit the original in full and issue a corrected invoice, so the tax figures on each document are right.
6. A goodwill discount after the fact. Credit note, with the reason in the description. Don't let it become a habit of rewriting invoices to keep a client happy.

Write the reason on every credit note. A year later, "Credit for the second round of edits removed from scope" saves a long email thread. For anything that changes your VAT return, check the treatment with your accountant.

How Delivvo handles voids, credit notes and refunds

Delivvo builds the right correction into the invoice itself, so you never have to edit a sent document or keep a side spreadsheet of what was credited.

• Void. An invoice with nothing paid, credited or pending can be voided. It keeps its number, stops taking payments and reminders, and the client gets one plain email. If it never reached the client, "Cancel this number" voids it without an email.
• Correct this invoice. One action voids the original with the reason "Replaced by a corrected invoice" and opens a new draft with the same lines, linked both ways on the project's activity.
• Credit notes. Each credit note gets its own CN number and credits part or all of an issued invoice. A balance credit lowers what the client owes, capped at the open balance. A refund credit documents money already returned. Every gateway then charges only what is still due.
• Refunds through your gateway. Refund in full or in part from the payment itself, through your own Stripe, PayPal or Square account, and document it with a refund credit note.
• Your details on every document. Credit notes carry your business identity and VAT number like your invoices do, plus a verification code anyone can check at delivvo.io/verify.

Credit notes also appear in the invoice export with their own type, so your accountant sees the original and the correction side by side. Delivvo takes 0% of every payment, including the ones you later refund. See how corrections work on the invoices and tax page.

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