Credit notes in South Africa: when to issue one and what it must show

A credit note corrects an invoice without erasing it. You issue one when work is cancelled, goods are returned, the price changes after invoicing or you simply got the invoice wrong. If you are VAT-registered, the credit note also adjusts your VAT, and it has to carry certain details.

On this page: when to issue one · what it must show · the VAT effect · an example · good practice · questions

When to issue a credit note

Section 21 of the Value-Added Tax Act sets the occasions for a VAT vendor. In plain words, a credit note is needed where the supply has been cancelled, fundamentally varied or repriced by agreement with the client, where goods or services have been returned, or where the agreed price turns out to have been wrong, and the tax invoice showed more tax than it should have. In practice, that covers:

• A cancelled job. You invoiced a deposit and the client cancels.
• A return. The client sends goods back.
• A discount agreed after invoicing, for example a goodwill reduction for a delay.
• A mistake. Wrong quantity, wrong price or the wrong client.

If you are not VAT-registered, the VAT Act does not apply to you, but the same practice does: correct with a credit note, not by editing the invoice.

What a VAT credit note must show

Section 21(3)(a) lists the particulars. Read from the Act, a credit note must show:

1. The words "credit note" in a prominent place.
2. The supplier's name, address and VAT registration number.
3. The recipient's name, address and VAT number, unless the original supply was under R5,000 and a simplified tax invoice was issued.
4. The date the credit note is issued.
5. A brief explanation of the circumstances.
6. The value of the reduction and the VAT on it.
7. Information that identifies the transaction, which in practice means the number of the original tax invoice.

Add a serial number of its own (CN-0001, CN-0002) so each one can be found. SARS's VAT guide for vendors shows an example with a field for the tax invoice reference. Check the current text of section 21 or the guide for the exact wording, because small differences matter in an audit.

The effect on VAT

A credit note reduces what you charged, so it reduces the output VAT you declare for the period in which you issue it. On the other side, a VAT-registered client who claimed input tax on the original invoice adjusts their claim. That is why the credit note has to identify the original invoice and show the VAT amount clearly.

Zuvo takes credit notes into account in its VAT summary, so the VAT you charged for a period is shown net of the credit notes you issued in it. The summary is a working figure for your own records, not a VAT201 return, so check it against your accountant's.

An example

A plumber invoiced a client R7,820.00 for a geyser job (INV-0042, including VAT). The client agrees a goodwill discount of R575.00 for a delay. The plumber issues credit note CN-0001 for R575.00, which includes R75.00 of VAT, with the reason "Goodwill discount for the delay" and the reference INV-0042. The client now owes R7,245.00.

Good practice

• Issue it promptly. Do not leave a correction until year end.
• Reference the original. Always name the invoice number it reduces.
• Send it to the client. They need it for their own records and VAT.
• Keep the copies for at least five years, with the invoices.
• If the whole invoice was wrong, credit it in full and issue a new, correct invoice.

Questions people ask

What is a credit note?

A credit note is a document you issue to reduce an invoice you have already sent. Use it when work is cancelled, goods come back, the price changes after invoicing or the invoice was wrong. It cancels all or part of what the client owes without altering the original invoice.

When must a VAT-registered business issue a credit note?

Section 21 of the VAT Act applies where a supply is cancelled, fundamentally varied or repriced by agreement, goods or services are returned, or the agreed price turns out to have been wrong, and the tax invoice showed too much tax or too much output tax was accounted for. In those cases the supplier gives the client a credit note.

What must a VAT credit note show?

The words "credit note", the supplier's name, address and VAT number, the recipient's details (not required where the original supply was under R5,000 and a simplified tax invoice was issued), the date, the value of the reduction and the VAT on it, a short explanation, and information that identifies the original transaction, such as the tax invoice number.

Can I just edit the invoice or delete it?

Do not. An issued invoice is a record. If it was wrong, issue a credit note for the error and a new invoice for the right amount, so the numbering and the audit trail stay intact.

What is a debit note?

The opposite: a document that increases an earlier invoice, for example when the tax shown was too low. Under section 21 it must show the words "debit note" and the increase in value and tax.

Related: VAT invoice requirements · How to write an invoice · Quote vs invoice vs proforma · Invoicing software for South Africa

General guidance, not legal or tax advice. This guide summarises section 21 of the Value-Added Tax Act, 1991, as published at acts.co.za, and the discussion of its particulars in BDO's note on credit notes. The rules for special cases, such as electronic services and prepaid vouchers, differ. Check the current Act and SARS guidance, or ask your accountant.