Invoice correction: How and when does a correction invoice have to be written?

It often happens that errors creep into an invoice. These must then be corrected yourself if possible. If they are not corrected, there will be consequences. Both for the invoice issuer and the invoice recipient. Which invoicing errors require an invoice correction, how this is posted and what you need to do in connection with it value added tax must be taken into account is explained in this article.

Table of contents:

1. Can an invoice be changed subsequently?
2. Why does an incorrect invoice need to be corrected?
3. What is a correction invoice?
4. How do you write an invoice correction?
5. Who is allowed to correct invoices?
6. What does an invoice correction look like?
7. How do you post an invoice correction?
8. What happens to sales tax when an invoice is corrected?
9. When is an invoice corrected and when is a credit issued?

Can an invoice be changed subsequently?

It depends on. If it has already been sent but not yet paid for, it can still be changed. Here the recipient can, for example. be informed with a correction notice. It is even easier to send the original invoice corrected. In other words, only a corrected version of the original invoice will be submitted.

If the invoice contains an error and has already been sent and paid, it is no longer possible to change it later. Instead, a correction invoice must be issued. In order not to aggravate the problem even further, it must follow certain formal requirements - such as the sales tax requirements. But more on that in Chapter 3.

Why does an incorrect invoice need to be corrected?

If an incorrect invoice is not corrected, it can have far-reaching consequences – for both the issuer and the recipient. If the invoice recipient is subject to a tax audit at a later date, the input tax deduction, for example, may be at risk. If the auditor discovers several incorrect documents, it can even happen that the entire one Accounting is put into doubt.

In such a case, the tax office is allowed to estimate the tax base, which can ultimately be very expensive for the taxpayer. That's why an entrepreneur (or freelancer) should always be interested in issuing customers a proper invoice or notifying them at the latest when an error is discovered. Otherwise, he runs the risk of losing not only this client but also other clients.

What is a correction invoice?

Invoice correction refers to a business process in which an incorrect invoice is corrected or canceled. For example, the reason for an invoice correction may be that a customer or business partner receives proof of reimbursement of money for a product or service. It is not enough to simply correct them in your own documents. The legal basis for an invoice correction is § 31 UStDV (Sales Tax Implementation Ordinance) .

The invoice correction takes place in two steps:

1. Creating one Cancellation invoice (with a negative balance; serves to neutralize the incorrect invoice).
2. Creating one Correction invoice (with a positive balance; serves for new – and this time correct – invoicing).

The terms correction invoice, invoice correction or cancellation invoice are sometimes synonymous. But all three terms have one thing in common: they have been replacing the term credit since 2013 - provided this is used in connection with a full or partial chargeback of an invoice amount due to incorrect invoicing.

When invoicing, for example: B. made the following errors:

• Incorrect invoice amount
• Missing or incorrect invoice number
• Incorrect indication of the sales tax rate
• Incorrect address details regarding the invoice recipient
• Incorrect or missing tax number of the invoice issuer or invoice recipient
• Incorrect statement of performance
• Incorrect service date

These and other errors should be corrected for tax purposes. Because basically they have to be in the §§ 14 and 14a UStG (Sales Tax Act) The mandatory information contained in an invoice must be included without errors in order to avoid later problems with the tax authorities. Therefore, both the invoice issuer and the invoice recipient are required to check invoices for accuracy and, if necessary, request or make an invoice correction.

A NOTICE: Mistakes happen, including in accounting. When an invoice correction needs to be made (and to what extent) depends primarily on the time at which the error is noticed.

How do you write an invoice correction?

If errors were made during the actual invoicing, then these should at least be avoided in the corrective invoice. To do this, some important formal requirements must be adhered to. Starting with the question:

Who is allowed to correct invoices?

Only the service provider (self-employed person, freelancer or company) is authorized to correct the invoice. It is not permitted for the service recipient (customer) to make corrections on his own. They are not accepted by the tax office.

What does an invoice correction look like?

The legal basis for the invoice correction is Section 31 UStDV. This must then meet the same requirements in terms of form and content as an invoice. To the Mandatory information on a proper invoice According to Section 14 UStG (Sales Tax Act), the following include:

1. Name and address (complete) of the service provider and the recipient,
2. Tax number (issued by the responsible tax office) or sales tax identification number (issued by the Federal Central Tax Office),
3. Date of invoice,
4. Bill number,
5. Quantity and type (commercial designation) of the goods delivered or scope and type of service provided,
6. Time/period of delivery or service provision,
7. Invoice amount (including all applicable taxes),
8. possibly reference to credits or other reductions in the original invoice amount,
9. possibly reference to tax exemption,
10. Possibly a reference to the invoice recipient’s retention obligation (duration).

In the case of a correction invoice, the following information is also added: A clear reference to the original invoice with the invoice number and date. This can e.g. B. in the subject line in the following way: “Correction of the invoice with the invoice number XY from the Date.”

How do you post an invoice correction?

After the original (incorrect) invoice has already been posted, the cancellation invoice must first be posted (to neutralize the original invoice) and then the correction invoice (to issue the invoice again).

For the accounting These three invoices should be kept:

1. The flawed original,
2. the cancellation invoice
3. and the correction bill.

A NOTICE: If something changes to the invoice amount as a result of the invoice correction, the advance VAT return must also be adjusted if it has already been sent to the tax office.

What happens to sales tax when an invoice is corrected?

If the invoice amount is changed with the correction invoice, this will affect the sales tax. This must subsequently be adjusted upwards or downwards. Two cases can occur here:

1. If the sales tax shown in the original invoice is higher than in the corrective invoice and this has already been transferred to the tax authorities, then the next advance sales tax return or annual return must be corrected accordingly.
2. If the sales tax in the original invoice is lower than in the correction invoice and it has already been paid, then the difference must be paid additionally. The same applies to the invoice recipient, who is only allowed to deduct the sales tax as input tax that is stated in the corrected invoice.

In principle, there is no deadline for invoice correction. Since Section 31 Paragraph 5 UStDV does not set a time limit for correcting an invoice, according to the Federal Finance Court (BFH), a correction is possible until the end of the last oral hearing before the Finance Court (FG).

So not until the final discussion in the tax audit or the formal validity of a tax assessment. This makes it possible to deduct input tax from the original invoice without having to do so Interest rate determination according to Section 233a AO occurs.

When is an invoice corrected and when is a credit issued?

Already since July 11, 2013 When creating an invoice correction, care must be taken to use the terminology correctly. In traditional business transactions, discounts are often referred to as credits. However, this does not correspond to the definition according to the sales tax law. According to this, a credit note is an invoice issued by the recipient of the service. In other words, a reverse invoice or billing credit that is clearly separated from the process of correcting the invoice.

When it comes to credits, a distinction is first made between the sales tax credit and the commercial credit:

1. Sales tax credit: This is essentially the reverse invoice already mentioned, which the service recipient sends to the service provider. This is the case, for example, when billing commissions for sales or contracts. In other words, the representative/seller invoices the actual provider of the service/goods for his commission. Since credit notes are invoices, they must contain all the information required in Section 14 Paragraph 4 UStG. If only one of the legally required details is missing, the input tax deduction does not apply.
2. Commercial credit: This is the cancellation or correction of a previously issued invoice, which becomes necessary, for example, due to the return of part (or the entire) delivery of goods. Or the goods were only delivered incompletely or with defects. Although this process is often referred to as a credit in common usage, it is not, according to the sales tax law. For sales tax purposes, this process is considered an invoice correction, which leads to a reduction in payment. As a result, the heir's sales tax and the recipient's input tax deduction are corrected downwards ( Section 17 Paragraph 1 Sentence 1 UStG ).

Therefore, the invoice correction (or the cancellation invoice made in it) is not a credit from a tax perspective. And a credit note cannot therefore be used to correct the invoice.

Conclusion:

Mistakes happen. It is important to act quickly in this context. Correct the affected invoices and inform the invoice recipient about the invoice correction.

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