Price Difference Invoice: What Is It, When Is It Issued and How Is the VAT Rate Set?

You have issued the invoice, but then the exchange rate changed, a discount was earned or the unit price was entered incorrectly. What do you do? Cancelling the invoice is usually not necessary, because a price difference invoice is issued to document the difference. In this article we explain what a price difference invoice is, how it is issued, how VAT is calculated and how to record it in the accounts, with an example.

🚀 At a Glance

• A price difference invoice documents the difference between the invoice issued earlier and the final price.

• VAT is calculated only on the difference (the difference in the tax base), not on the whole invoice.

• The VAT rate must be the same as the rate on the original invoice.

• If the original transaction is exempt from VAT, no VAT is calculated on the difference invoice either.

• The invoice must be issued in the period in which the difference arises, and the VAT must be shown on that period's tax return.

What Is a Price Difference Invoice?

A price difference invoice is not a standalone sales document. It supplements a delivery of goods or provision of services that has already taken place. It is issued to record the difference when the amount on the first invoice later changes.

When Is It Issued?

• When there is a difference between the agreed exchange rate and the rate on the payment date

• When year-end turnover bonuses or retrospective discounts are earned

• When the unit price on the original invoice was entered too low or too high by mistake

• When an additional charge arises from a cost increase or a contract update

Who Issues the Invoice?

The invoice is issued by the party in whose favour the price difference works. A seller entitled to an additional charge issues the difference invoice. If the difference is a discount or refund in the buyer's favour, the buyer issues the invoice. Practice can vary for differences with end consumers, so in that case consult your accountant.

How Is It Issued?

1. Identify the reason for the difference. It may be the exchange rate, a discount, an incorrect price or a change to the contract.

2. Calculate the difference. Subtract the amount on the first invoice from the new amount.

3. Calculate the VAT. The rate is the rate on the original invoice and the tax base is the difference only.

4. Link the invoice to the first invoice. Write "price difference" in the invoice description, together with the date and number of the first invoice.

5. Issue and send the invoice. If you use e-Invoice and e-Archive, the same steps apply electronically.

How Is VAT Calculated on a Price Difference Invoice?

VAT is calculated on the difference between the two amounts, not on the first invoice amount or the new total. The rate must be exactly the same as the rate on the first invoice.

Example: The first invoice was issued for 100,000 TL + 20% VAT. Later, a contract update brought the price to 110,000 TL.

1. Step: Difference (tax base): 110,000 − 100,000 = 10,000 TL

2. Step: VAT (20%): 10,000 × 0.20 = 2,000 TL

3. Step: Total of the difference invoice: 10,000 + 2,000 = 12,000 TL

So you issue the other party a price difference invoice for 12,000 TL. You do not need to cancel or reissue the first invoice.

💡 Üstad Reminder: If the original transaction is subject to withholding, the same withholding rate is shown on the difference invoice. If the original transaction is exempt from VAT, no VAT is calculated on the difference invoice either.

How Is It Recorded in the Accounts?

1. Additional Charge / Price Increase (Scenario Where the Seller Issues the Invoice)

Taking the example above (10,000 TL + 20% VAT):

Seller Side:

• 120 Trade Receivables: 12,000 TL (Debit)

• 600 Domestic Sales (Price Difference): 10,000 TL (Credit)

• 391 Output VAT: 2,000 TL (Credit)

Buyer Side (if the goods are still in stock):

• 153 Merchandise: 10,000 TL (Debit)

• 191 Deductible VAT: 2,000 TL (Debit)

• 320 Trade Payables: 12,000 TL (Credit)

Buyer Side (if the goods have already been sold):

• 621 Cost of Merchandise Sold (or the relevant expense account): 10,000 TL (Debit)

• 191 Deductible VAT: 2,000 TL (Debit)

• 320 Trade Payables: 12,000 TL (Credit)

2. Price Reduction / Discount (Scenario Where the Buyer Issues the Invoice)

Where the buyer issues the seller a price difference invoice for 10,000 TL + 20% VAT because the price fell or a discount was earned:

Buyer Side (Issuing the Invoice):

• 320 Trade Payables: 12,000 TL (Debit)

• 602 Other Extraordinary Income (or 153 / 621 Credit): 10,000 TL (Credit)

• 391 Output VAT: 2,000 TL (Credit)

Seller Side (Receiving the Invoice):

• 611 Sales Discounts: 10,000 TL (Debit)

• 191 Deductible VAT: 2,000 TL (Debit)

• 120 Trade Receivables: 12,000 TL (Credit)

Account codes may vary depending on your business's chart of accounts and its details.

Common Mistakes

• Calculating VAT on the total amount. The tax base is the difference only.

• Applying a different VAT rate. The rate must be the same as on the original invoice.

• Forgetting an exemption or withholding. The VAT treatment of the original transaction also applies to the difference invoice.

• Issuing the invoice late. It must be issued in the period in which the difference arises, and the VAT must be declared in that period.

• Not referring to the first invoice. If the date and number of the first invoice are not in the description, matching becomes harder during an audit.

• Confusing a price difference invoice with a return invoice. With a price difference, the goods or services have changed hands and only the price has changed; with a return invoice, the goods come back.

Conclusion

• Document the reason for the price difference (contract, exchange rate information, discount correspondence).

• Issue the difference invoice in the period in which the difference arises.

• Check the VAT rate against the original invoice and take only the difference as the tax base.

• Add the details of the first invoice to the invoice.

• If in doubt, confirm the treatment with your accountant.

❓ Frequently Asked Questions

Is VAT added to a price difference invoice?
Yes. If the original transaction is subject to VAT, VAT is also calculated on the difference invoice. If there is an exemption, no VAT is calculated.

What should the VAT rate be?
It must be the same as the rate on the first invoice. A different rate cannot be applied.

Who issues the price difference invoice?
The party in whose favour the difference works. This may be the seller entitled to an additional charge or the buyer entitled to a discount.

Do I need to cancel the first invoice?
Usually not. The difference invoice documents the difference without changing the first invoice.

Are a price difference invoice and a return invoice the same thing?
No. With a price difference, the goods or services have changed hands and only the price has changed. With a return invoice, the goods come back.