UK Best Practice for Credit Notes and Refunds

When issuing credit notes in the UK, especially in a retail or trade environment, it is important to follow consistent procedures that align with accounting standards, VAT rules, and consumer protection regulations. One key principle is that refunds should, wherever possible, be made using the same tender type as the original payment.

Refunds Should Match the Original Tender Type

Best practice is to refund using the same method the customer used to pay. If the original transaction was made by debit or credit card, the refund should go back to that card. If the customer paid in cash, they should receive cash in return. This ensures a clear audit trail and helps prevent discrepancies in financial records.

Why Tender Type Matching Matters

Refunding to the original payment method provides:

• Traceability: It links the refund directly to the original sale, making it easier to verify during audits.
• Fraud Prevention: It avoids the risk of unauthorised refunds or refund fraud.
• Customer Protection: For card payments, refunds to the same card protect the customer and the business by ensuring the refund goes back to the rightful account.

Many payment processors also restrict refunds to the original card to comply with card scheme rules and PCI DSS standards.

VAT and Accounting Considerations

A credit note adjusts the original VAT charged and must therefore reference the original invoice or sales order. Ensuring the refund uses the same tender type simplifies your VAT reporting and maintains consistency across your accounting records. This is especially important if you're using digital accounting tools or submitting VAT returns under Making Tax Digital.

Handling Exceptions

There are situations where refunding to the original tender type isn’t possible. For example:

• The original card has expired or been cancelled
• A cash float is insufficient for a large cash refund
• The customer paid using a voucher or loyalty points

In these cases, an alternative refund method can be used — such as a bank transfer — but the reason for the change should be clearly documented. The credit note should still reference the original transaction and show how the refund was handled.

Summary

In summary, UK best practice is to refund credit notes using the same tender type as the original payment whenever feasible. Doing so ensures compliance with financial standards, supports accurate VAT reporting, and helps protect against fraud. If you must use a different method, ensure the change is justified, recorded, and clearly tied back to the original transaction.

Setting Merchanter to Allow Credits in a Different Tender Type From the Original in a Cash Sale. 

By default, the system is set to only allow a credit to be raised for the tender type of the original order. if you want to be able to raise the credit to a differnet tender type, the system settings will need to be changed. Please contact Ten25 support for help with this.

Issuing a Cash Sale Credit for a Different Tender Type. 

Once you have the correct settings configured, you can follow the usual procedure to credit the order.  
Now the tender types are selectable, even though this order was raised as cash, we can now select BACS as a refund method. 

After selecting the tender type, finish your credit procedure as normal.

Video Guide.

Issuing a Cash Sale Credit for a Different Tender Type