Correcting or canceling an invoice

Only the service provider, company or merchant who issued the invoice may provide corrections or cancellations to an invoice. A correction by the recipient of goods or services is not permitted and will not be accepted by the tax office.

In the case of a tax audit, or special sales tax audit, invoices and receipts are the focus of the investigation. Considering how many invoices and receipts a business can accumulate, it is a great achievement for a company to do this with no errors. The reality is that companies often do make mistakes: as a rule, there are some small and occasionally some large errors. The HMRC or other investigating authority may ask you enter your tax deductions from the beginning as a result.

The Contractual Disclosure Facility

The CDF offers you the chance to disclose any tax fraud you have been involved in. This offer expires sixty days after you receive HMRC's letter making the offer.

Has a customer of yours returned goods to you? Have you noticed an incorrect amount in your invoice, or forgotten to include any other crucial information in it? All you need to do to rectify the situation is write a corrected invoice to your customer! To do this, you need to know what information is crucial when making an invoice.

The UK legislation that states what contents an invoice issued must include. Accounting best practice standards dictate that the following information should be present on any invoice issued by a merchant:

    The full name and address and contact information of both the merchant and the customer.

    The issue date of the invoice.

    The date the goods or services were provided (supply date).

    The deadline date for paying the amount due.

    The correct invoice number for the invoice.

    Accurate description of goods or services provided.

    The amount due to be paid, including any pre-arranged discounts applicable.

If one of these details is missing or incorrect, you should issue an invoice correction. If not, you run the risk of having inadequate records when it comes to filing tax returns and may risk not being able to claim back on your sales tax expenses.

There are two things you need to remember when dealing with an invoice correction. Firstly, you must issue the missing or correct information by means of a corrected invoice with a new invoice number. Secondly, your corrected invoice must clearly refer to the previous invoice it is replacing. Do not worry too much about spelling mistakes or typos – generally, if the meaning of your bill is clear, you do not need to make any corrections.

If the incorrect invoice has not yet been issued to the customer or processed by your accounting department, then there is no need to create a correction invoice. All you need to do is start the first invoice again from scratch under the same invoice number and send it to the customer. After all, they have not yet seen the mistake so they need never know it was made in the first place.

However, if the customer has already received the invoice, you should issue the corrected one as quickly as possible. It is also best practice to inform the customer that you are issuing them a correction invoice. If the bill has not yet been paid and has not been debited, then you can use a billing correction to correct your mistake. This is a document that corrects the missing or incorrect information and is sent to the customer before they have paid the bill. When issuing a billing correction, you must make sure that the document clearly correlates to the previously issued invoice. To do this, be sure to include the following information:

     Name and Address of the company providing the service

     Correction of the previous error

     Reference to the invoice number and date of origin.

Handwritten corrections are also an option in some situations. If the customer comes back to your business with the incorrect invoice, you can correct the error by hand with a note directly on the original invoice. However, you must be sure to sign, date and stamp (if you have a company stamp) the invoice. You will need to make a copy of this corrected invoice for your own records and store it together with the original invoice.

If the invoice has already been sent, a revised document is no longer sufficient. You will need to proceed in two steps: firstly, you will need to cancel the old invoice and issue a new one. You can cancel the original invoice by creating a cancellation invoice with a negative invoice amount. This means that the original invoice is no longer valid and is canceled when the reversal invoice is posted. Make sure that the cancellation invoice has its own invoice number. Include the following information to ensure that it is assigned to the original invoice:      The original invoice number      The date of the original invoice Secondly, you will need to create a new proper invoice, with a new invoice number. Be sure to include the original invoice number in the subject line. This will make it easier for the HMRC to understand the entire process.

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