Definition
A debit note is a commercial document used to record an upward adjustment to a payable. It can be issued by a customer to a supplier (less common) or by a supplier to a customer (more common) to formalise additional charges, undercharges, interest on overdue accounts, or other adjustments that increase the amount owed. Where the original transaction carried VAT or GST, the debit note carries an equivalent upward tax adjustment.
What a debit note means in practice
For a bookkeeper, the debit note is the inverse of the credit note. Credit notes reduce a payable; debit notes increase it. The mechanics in Xero or QuickBooks mirror the credit-note workflow but in reverse: open the original invoice, issue a debit note for the additional amount, post the increase to AR (or AP on the buyer’s side) with the corresponding revenue (or expense) and VAT (or GST) lines.
The reason debit notes are less common than credit notes is that most post-invoice adjustments are downward. Customers return goods, suppliers offer late-noticed discounts, billing errors get corrected downward. The upward case (a supplier needs to add interest, or a customer needs to record an undercharge they identified) is narrower, and UK practice usually handles it by issuing a fresh invoice rather than a debit note. The CA, SG, and AU preferences are more split.
A practical example: a Singapore consultancy invoices a client SGD 5,450 (SGD 5,000 + SGD 450 GST at 9%) for a project, payable Net 30. The client identifies an undercharge: the agreed scope included an additional half-day of work at SGD 800 that was omitted from the invoice. The client issues a debit note for SGD 872 (SGD 800 + SGD 72 GST) referencing the original invoice, increasing the payable to SGD 6,322. The supplier accepts the debit note, posts an offsetting entry, and re-invoices for the total. Both parties’ GST returns pick up the SGD 72 adjustment.
How debit notes work by country
United Kingdom
HMRC VAT Notice 700/21 recognises debit notes for VAT adjustments, though the more common UK practice is to issue a fresh invoice for the additional amount rather than a debit note. The debit note must include the same fields as a credit note: sequential number, parties, original invoice reference, the adjustment amount, and the VAT portion shown separately. The supplier increases output VAT in the period the debit note is issued; the customer increases input VAT in the same period.
Australia
Less commonly used in AU practice than the supplier-issued adjustment note. Where used, debit notes from the customer to the supplier (e.g. for short-shipped goods, where the customer recognises the over-payment) must reference the original tax invoice. The supplier then either issues an adjustment note or, more typically in AU practice, the customer just deducts the value from the next payment without further documentation.
Canada
Recognised by the CRA as one route for documenting a GST/HST adjustment. The other route is the supplier-issued credit note. Either party can initiate the adjustment depending on who identified the error. The adjustment must be supported by documentation that meets the Input Tax Credit Information Regulations.
New Zealand
Renamed “supply correction information” under the April 2023 GST reforms (the same renaming that applied to credit notes). The customer-initiated debit-note variant is rarely used in NZ practice; the more common path is for the supplier to issue the correction and the customer to accept it.
Singapore
IRAS recognises debit notes for upward GST adjustments under section 7.3 of the GST Act. The required fields mirror those of the credit note: the issuing party, both parties’ details, the original invoice reference, the adjustment amount, and the GST portion shown separately.
Related terms
The debit note is the inverse of the credit note:
- A credit note is the more common downward-adjustment document.
- An invoice is the original document the debit note adjusts.
- A tax invoice is the version that triggers a tax-adjustment debit note when corrected upward.
- The debit note increases the accounts payable balance on the buyer’s side.
- It also increases the input VAT recorded on the original purchase.
See also
For the more common downward-adjustment document, see the credit note entry.
FAQ
See the answered questions above for when to issue a debit note, the difference from a credit note, and the new-invoice alternative.