As a start-up business, you will be looking forward to the days when the invoices you send out outweigh the bills you are sent to pay. On some days it may look like those days are far away on the horizon, but believe me that if you are focused and determined, it won’t take long before those days come to pass. The chances are you’ll be so busy, you may not realise until you sit down to do your accounts!
When I started my first business, I knew all about invoices and when I became VAT-registered, I asked many questions, read many articles to understand how my invoices needed to change to allow for VAT to be added and evidenced. The one thing I hadn’t realised was how to handle credit notes.
A credit note is similar to an invoice however is normally issued to reduce an invoice already issued. It is a common misconception that credit notes should be issued for all invoices that have to be reduced, however here in the UK that is not the case. If you are not VAT-registered, then you can amend an invoice and simply send a revised invoice to your customer. Credit notes however become mandatory when you are charging VAT or more accurately are subject to VAT.
So if the value of VAT charged on an invoice needs to change downwards, a credit note must be issued to provide the paper trail of this. If it is agreed between the parties involved that the VAT can remain unchanged, then a reduction in the non-VAT amount can be made without the issuing of a credit note.
I should stress that if you need help on these issues, you should seek the services of a professional accountant.
There you have it, a quick educational session on when to use credit notes. What has been your experience of credit notes and the like? Please do share your stories by adding a comment.
- Five tips to take the pain out of invoicing and asking for money (successnetwork.wordpress.com)