How VAT works on a credit note
A credit note takes back VAT as well as the price. Work out the VAT on one and see what it does in the buyer's books.
This path is practice in how the records and the sums work. It is not tax advice. Any rate or allowance in a question is an example for that question, so check GOV.UK for the current figures.
Task 1What a credit note does to VAT4 questions
When goods go back, or an invoice charged too much, the seller issues a credit note. It reduces the VAT as well as the price.
- The seller's output tax goes down
- The buyer's input tax goes down by the same amount
The credit note uses the same rate of VAT as the invoice it corrects, and it gives the number and date of that invoice.
Task 2The figures on the credit note3 questions
Task 3The credit note in the buyer's books2 questions