Suppliers' Credit Notes: How to Handle Them

A credit note is the document by which a supplier reduces an invoice already issued, for example following an error, a discount granted after invoicing or a service not performed. It is governed by Article 26 of Presidential Decree 633/1972 and, for the condominium that receives it, means a lower cost to record in the accounts. Handling it correctly means aligning the report, correcting any withholdings and not jeopardising the tax deductions on works.

When the condominium is entitled to a credit note

The supplier issues a credit note when the amount originally invoiced must decrease. The most frequent situations in condominium management are clear and must be documented so the correction is consistent with what happened.

• Error in the amount or VAT rate of the original invoice
• Discount or allowance granted after the invoice was issued
• Service partially unperformed or not compliant with the contract
• Return of materials or cancellation of part of the order
• Duplication of an invoice already issued for the same service

How it is recorded in the accounts

The credit note reduces the cost borne by the condominium for that expense. In the accounts it must be linked to the invoice it corrects, so that the net balance towards the supplier is correct. If the original invoice had already been allocated among owners, the credit note requires a reduction to be reflected in the allocation, with an adjustment in owners' favour or a smaller share to charge.

Effects on withholding tax

If the corrected invoice concerned a works contract on which the condominium had applied the withholding tax, the credit note affects the withholding too. As the taxable amount decreases, the withholding due decreases proportionally. The manager must check the amount actually withheld and paid, and account for it in the single certification issued to the supplier, so as not to certify a withholding higher than the correct one.

Credit notes and deductions on works

When the credit note concerns works that qualified for tax deductions, the deductible amount must be reduced accordingly. The deduction is due on the expense actually incurred: if part of the cost is reversed, the eligible base decreases. The manager updates the documentation and any data reported to the Revenue Agency, so the deduction reflects the net expense remaining on the condominium.

Credit note received after the year is closed

As with late invoices, a credit note may arrive after the report to which the expense related has been closed. In this case the correction must be handled in the year the document is received, with due transparency towards the meeting, or according to the accounting criterion adopted by the condominium. The key point is that the item is not lost and that owners see the lower cost recognised.

What the manager must do

Once a credit note is received, the manager takes a few orderly steps to keep the accounts and the relationship with the supplier consistent.

• Check that the note correctly refers to the relevant invoice
• Verify the reversed amount and the consistency of the VAT
• Link the note to the expense and update the allocation among owners
• Correct withholdings and data for deductions, where relevant
• File the note together with the original invoice

Automatically linking each credit note to the invoice it corrects, updating the allocation and keeping the documents in a single folder avoids errors and wrong adjustments. With AmministraPro suppliers' credit notes are recorded linked to invoices, with an immediate impact on the allocation and the report: the features are described on the /funzioni page and the plans on the /prezzi page.