You invoiced a customer, then the goods came back — or the price changed, or the invoice was simply wrong. You can't just delete a tax invoice: once issued, it exists. The correction instrument is the credit note.
When you must issue one
Section 21 of the VAT Act covers it: issue a credit note when a supply is cancelled, goods are returned, the nature of the supply changed, or the agreed price was reduced after the tax invoice went out (including billing errors). The credit note reduces what the customer owes — and reverses the VAT.
What a valid s21 credit note must contain
1. The words "credit note". 2. Your name, address and VAT registration number. 3. The customer's name, address and VAT number (mirroring the tax invoice requirements). 4. Identification of the original tax invoice — its number and date, or enough detail to identify the supply. 5. The reason for the credit. 6. The amount credited and the VAT portion (or a VAT-inclusive amount with a statement of the rate).
A "discount" email or a scribbled note doesn't qualify — and without a valid credit note, you can't reduce your output VAT, and your customer must keep claiming input VAT they now aren't entitled to.
The VAT effect
The credit note reduces your output VAT in the period you issue it (VAT201 adjustment), and the customer must reduce their input VAT claim correspondingly. Both sides keep the document for 5 years.
Common mistakes
- Deleting or editing the original invoice instead of crediting it — breaks your sequential numbering and looks like fraud in an audit.
- No reason recorded — required, and the first thing a SARS auditor asks.
- No reference to the original invoice — an "orphan" credit note is easy to challenge.
- Issuing credits to write off bad debt — irrecoverable debt has its own VAT relief mechanism (a bad-debt adjustment), not a credit note; the supply still happened.
How 360books does it
Create the credit note against the customer, pick the original invoice and a reason — both prompted — and 360books produces a fully s21-compliant PDF on your letterhead with both parties' details and the VAT credited, emails it to the customer, posts the accounting reversal automatically, and tracks the credit until it's applied to an invoice or refunded. The credit also shows on the customer's statement, so their balance is always right.