What is a debit note and when is it used?
A debit note is a document issued by a buyer to a seller to increase the amount owed, or by a seller to a buyer to inform them of an increase in the invoice amount. Debit notes are used for: additional charges not included in the original invoice, interest on late payment, price adjustments after delivery, and returned goods where the buyer requests a credit. In e-invoicing, debit notes must conform to the same format and transmission requirements as invoices.
When should a debit note be issued instead of a new invoice?
A debit note is appropriate when: (1) An original invoice was too low and needs to be increased (e.g., quantity delivered exceeded what was invoiced); (2) Additional charges arise after the original invoice was issued (shipping costs, handling fees); (3) Interest on overdue payment is being charged; (4) A price variation clause in the contract results in a higher price. The debit note must reference the original invoice it supplements and must comply with VAT invoice requirements for the additional amount charged.
Frequently Asked Questions
- Does a debit note require VAT to be charged?
- If a debit note increases the taxable value of a supply, VAT must be charged on the additional amount at the applicable rate. The VAT on the debit note is treated as additional output VAT for the seller and additional input VAT for the buyer. If the debit note is for a non-supply charge such as contractual interest (outside scope), no VAT is charged. The VAT treatment follows the nature of the underlying charge.
- How are debit notes processed in e-invoicing mandated jurisdictions?
- In CTC mandated jurisdictions like Saudi Arabia, debit notes must undergo the same clearance process as original invoices if they relate to taxable supplies. In France, debit notes for adjustments to B2B supplies must be transmitted via the PDP or PPF. The UBL document type code for a debit note is 380 (same as invoice) with a specific reference to the original invoice; some jurisdictions use a separate code (e.g., 83 for debit note in some implementations).