A credit note belongs to the period you issued it
Cancelling an invoice and crediting it are not the same act, and only one of them is safe once a period is closed.
You invoiced a customer in March. In April the job changed, or a line was wrong, or they returned something. The March return has been filed. What now?
The answer is a credit note dated April, and it belongs to April.
The rule
A credit note lands in the VAT period in which it was issued — not the period of the invoice it reverses. Reversing a sale from an earlier period does not reopen that period and does not restate a return you have already filed. April's T1 is reduced by the VAT on the credit note.
This is the sane behaviour and also the only workable one. The alternative — going back and amending the original period — means every filed return is provisional forever.
Why cancelling is not the same thing
Deleting or cancelling an issued invoice feels tidier and is the trap. A cancellation is a later event, and if your period figures are computed from an invoice's status as it reads today, an invoice issued in one period and cancelled in the next simply vanishes out of a return that has already gone to Revenue.
A measured example. One €987.75 invoice, issued 21 March, cancelled on 9 April. Computing the March–April figure from status alone moved it by €177.75 of output VAT depending on nothing but the day the report was run.
That is not an edge case. It is one invoice and two months, and the number changed because the question was asked on a different Tuesday.
A credit note fixes this by being a document with its own date. It happened, it is recorded, it happened in April, and March stays as filed.
Reverse the VAT that was charged
A credit note reversing a VATable supply reverses the VAT with it, at the rate that was actually charged. A 23% sale reversed by a 0% credit note leaves the VAT stranded — you have handed back the money and told Revenue you still owe the tax on it.
This matters most where the invoice carried more than one rate. Labour at 13.5% and materials at 23% on the one document have to come back at 13.5% and 23%, in the right proportions, not as a single blended reversal.
The same rule applies to the books
Whatever reaches your accounting software has to agree. An invoice booked at 23% and a credit note booked at 0% will reconcile to a balance of zero on the customer's account while leaving your VAT return wrong, which is the worst of both — it looks reconciled.
What to do, in order
- Do not delete the invoice. It was issued. It exists.
- Raise a credit note, dated when you actually issued it. Not backdated into a filed period.
- Reverse at the original rates, per line, in proportion.
- Reissue if there is still something to charge, as a new invoice with a new number.
This is a plain-English summary, not tax advice. Revenue's guidance on invoices and credit notes is the authority. If a filed return is materially wrong for some other reason, that is a correction conversation with your accountant, not a credit note.
In Kayment the credit note writes itself
Refund a paid invoice and the credit note is created, numbered and sent, reversing the same rates the customer was charged — and it lands in the period it was issued, never by restating the period of the invoice behind it. It reaches your Xero the same way.
See how it works