How do credit and debit notes work for VAT in South Africa?
When a vendor must issue a credit note or a debit note under section 21 of the VAT Act, and what the document must show.
If you have issued a tax invoice and the VAT charged was too high, you issue a credit note. If it was too low, you issue a debit note. This follows section 21 of the VAT Act. A credit note or debit note shows the words 'credit note' or 'debit note'; your name, address and VAT number; the recipient's name and address (unless you issued an abridged tax invoice); the date; the amount by which the value and the VAT are changed; a short reason; and enough information to identify the original transaction. Common reasons are returned goods, a price adjustment or a discount given after the invoice. Do not simply change an invoice you have already sent. Issue a separate note and keep both documents. 4invoices creates invoices and PDFs; check its documents against the SARS list before you use them as credit or debit notes.
- Credit note: the VAT charged was more than the actual VAT.
- Debit note: the VAT charged was less than the actual VAT.
- Show a reference to the original tax invoice and a short reason.
- Keep the note and the original invoice for at least five years.
How it works
Identify the change. Goods were returned, the price changed, or an error was found on the original tax invoice.
Decide the document. Issue a credit note if the tax invoice charged too much, or a debit note if it charged too little.
Complete the required details. Use the words 'credit note' or 'debit note', your name, address and VAT number, the recipient's name and address, the date, the amount of the change in value and VAT, a brief reason and a reference to the original invoice.
Send it to the customer. A vendor customer uses it to adjust their input tax.
Keep both documents. Keep the note together with the original tax invoice for at least five years.
Legal references
- Value-Added Tax Act 89 of 1991, section 21 - credit and debit notes.
- SARS VAT 404 Guide for Vendors - particulars of debit and credit notes.
- SARS Interpretation Note 56 - recipient-created tax invoices, credit and debit notes.
Frequently asked questions
When must I issue a credit note?
When you issued a tax invoice and the VAT charged exceeds the actual VAT for the supply, for example after returned goods or a discount. Section 21 of the VAT Act sets the rule.
What must a credit note show?
The words 'credit note', your name, address and VAT number, the recipient's name and address, the date, the amount by which the value and VAT change, a brief explanation and a reference to the original transaction, according to SARS guidance.
Can I just edit the original invoice?
No. Once a tax invoice has been issued, correct it with a credit note or debit note and keep both documents.
Does 4invoices have credit note or debit note templates?
4invoices creates invoices with the tax rate on each line and a PDF download. It does not link a credit note to the original invoice, does not send anything to SARS and does not guarantee that a document meets section 21. Check the content against the SARS list.