Credits and debits

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note provides an overview of how debits and credits should be dealt with from a VAT perspective.

Crediting a customer

If a supplier has agreed to issue a credit note to a customer or offers a contingent discount and the customer is able to recover all of the VAT incurred, the supplier and customer can agree to issue a credit note without VAT. If the parties do not agree that the credit note may be issued without VAT, the supplier should issue the credit note including VAT and the VAT amount should be recovered from HMRC via the suppliers' VAT return.

If preferable the customer can issue the supplier with a debit note. This option is commonly used if the customer has been issuing self-billed invoices (see the Self-billing guidance note for more information).

Regulations for VAT adjustments in the course of business (reg 38)

The Government has introduced legislation that amends the rules on output tax adjustments for retrospective price reductions with effect from 1 September 2019. From this date, businesses

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