Contra-Invoice, Supplier Customer and Supplier, VAT and Non-VAT Invoice

Hi guys,

I need some help in registering and invoice that will end up be a credit note.
One of my clients has a magazine in which they allow to advert products in exchange of a fee.
Last month we run this promo and our client charge as £500+VAT (£600). To pay this invoice we agreed with the client that we would have raised a credit note in order to discount some of the pending invoices that he has to pay to us.

Unfortunately while the invoice sent by our client contains VAT our invoice to them does not as everything we sell is VAT zero. For this reason when I am trying to raise a credit note against one of my client pending invoice, I am not allow to add any VAT.

How can I register this then?
Thanks in advance for your help.
Looking forward to hearing from you.
Kind Regards

You cannot raise a credit note with VAT if your sales items are zero/exempt for VAT, what you would do is first set up your client as a supplier and input their invoice to you as a purchase of £500.00 + VAT (£600.00).

You would then raise a credit note for part of your services as agreed and your client (supplier) who sent you the invoice for £500 + VAT would also raise a credit note for part of their services plus VAT, See the example below:

CN To Client:

Net: £250.00
VAT: £0.00
Gross: £250.00

CN from Client/Supplier:

Net: £250.00
VAT: £50.00
Gross: £300.00