How to cancel
an invoice

Sometimes an invoice should never have gone out: the order was cancelled, it went to the wrong customer, or it duplicates one already sent. The instinct is to delete it. Resist it. A deleted invoice leaves a hole in your numbering and a document in your customer's system that your own records no longer explain.

The right way: a full credit note

A credit note for the full value of the invoice cancels it. Give the credit note its own number from a credit note series, refer to the invoice it cancels by number and date, and state the full amount credited. The invoice and the credit note then net to nothing, and your records show exactly what happened and when.

Step by step

1. Check whether the customer has entered or paid the invoice.
2. Issue a credit note for the full amount, referring to the original invoice's number and date.
3. Send the credit note to the customer with a short note saying the invoice is cancelled and why.
4. Refund any payment already made, or agree to offset it against a future invoice.
5. Record the credit note in your accounts and keep it with the original invoice.
6. If the work is still going ahead on different terms, issue a new invoice with the next number.

Keep the number

Every invoice number must be unique, and a VAT invoice needs one from a sequence. A cancelled invoice keeps its number. Your next invoice takes the next number in the series, and the credit note explains the cancelled one. There is never a reason to reuse a number or leave a gap. The guide on invoice numbering covers sequences in more detail.

VAT-registered businesses

If the cancelled invoice was a VAT invoice, the credit note must meet the rules in VAT Notice 700: its own number and date, your name, address and VAT number, the customer's name and address, a description of what is being credited, the amounts excluding VAT, the rate and amount of VAT credited in sterling, and the number and date of the original invoice. Where you refund the customer, issue it within 14 days of the refund. The credit note reduces your output VAT, normally in the period you issue it.

Duplicates and wrong customers

A duplicate invoice is cancelled the same way: credit the duplicate, not the original. An invoice sent to the wrong customer should be credited in full, and the right customer sent a new invoice with a new number. Tell the wrong recipient to disregard it; if it contains another customer's details, treat it as a data protection matter too and ask them to delete it.

If you are not VAT registered

The same approach still works, and it is still the tidiest. Your records must show all your income accurately, and a credit note is the clearest evidence that an invoice was withdrawn rather than left unpaid. Keep it with your other records for at least 5 years after the 31 January filing deadline for the tax year.

Cancelling because of a dispute

If you are withdrawing an invoice because the customer disputes it, record what you agreed before you issue the credit note. A partial credit may be enough. The guide on invoice disputes sets out how to reach that point, and how to correct an invoice covers partial credits.

Avoiding cancellations

Most cancelled invoices come from sending before the details are confirmed. Check the customer's legal name and billing address when you take the order, confirm the price in writing, and invoice from the same record each time. For recurring work, check that nothing has changed before the next invoice goes out. A minute of checking saves a credit note, a refund and an awkward email.

Why deleting an invoice causes problems

Deleting feels tidy, but it creates three problems at once. Your numbering now has a gap, which is exactly what HMRC looks for when it checks whether records are complete. Your customer may already have the invoice in their system, so their records now show a debt your records do not. And if you are VAT registered and the invoice was in a VAT return, the VAT you declared no longer has a document behind it. A credit note fixes all three with one document.

Cancelling at different stages

What you do depends on how far the invoice has travelled.

What a cancellation involves at each stage

• Drafted, never sent1 step
• Sent, not processed2 steps
• Processed, not paid3 steps
• Paid4 steps
• In a filed VAT return5 steps

What to write on the credit note

Keep it plain. A cancelling credit note for a VAT-registered business might read: "Credit note CN-0007, dated 12 April. Cancels invoice INV-0231 dated 10 April in full. Reason: order cancelled by customer. Net credited £500.00, VAT at 20% credited £100.00, total credited £600.00." If you are not VAT registered, leave out the VAT lines; the rest stays the same.

Telling the customer

Send the credit note with a short email: which invoice is cancelled, why, and whether anything is still owed. If they have already paid, say how and when you will refund. A customer who receives a credit note without explanation may think it is a new bill, so the covering note matters.

When part of an invoice should stand

If only part of the work or order has fallen away, you do not need to cancel the whole invoice. Issue a credit note for the part that no longer applies and leave the rest payable. The guide on how to correct an invoice covers partial credits, and for disputed amounts see invoice disputes.

Cancellations and your accounts

A credit note reduces your income. Under the cash basis, if the invoice was never paid, the income was never recorded, so the credit note mainly keeps your sales records complete. If it was paid and you refund it, the refund reduces your income when you pay it. Under accruals, the credit note reduces your income in the period you issue it. Either way, the invoice, the credit note and any refund belong together in your records.

Common questions

Can I just send a new invoice with the same number? No. Invoice numbers must be unique. Cancel the old one with a credit note and give the replacement the next number; see invoice numbering.

Do I need a credit note if the invoice was never sent? No. If it never left your business, void it in your records and note that the number was not issued, so the gap is explained.

How should I number credit notes? In their own series, for example CN-0001 onwards. The invoice number generator can set up both series.

Does cancelling an invoice affect late payment interest? A cancelled invoice is not owed, so no interest runs on it. If you cancel and reissue at a different amount, any interest runs from the new invoice's due date.

Cancelling in special cases

Proforma invoices. A proforma invoice is not a demand for payment, so it does not need a credit note; tell the customer it no longer applies. Keeping proformas out of your invoice sequence means cancelling one never leaves a gap. See proforma vs invoice.

Construction work under CIS. If a cancelled invoice had been paid with a CIS deduction, the contractor needs to correct the payment and deduction statement too. Tell them at the same time as you send the credit note. The CIS invoice requirements guide explains how deductions work.

Reverse charge invoices. A credit note for a reverse charge invoice shows the VAT credited in the same way the original showed the VAT due, with the same reverse charge note. See reverse charge invoice wording.

Self-billed invoices. If your customer raises invoices on your behalf under a self-billing agreement, they issue the credit note too; see self-billing invoice.

The short version

Do not delete, do not reuse, do not edit to zero. Issue one numbered credit note for the full amount, refer to the invoice it cancels, tell the customer, refund anything paid, and file the two together. That is a cancellation any accountant, customer or HMRC officer can follow at a glance.