diff --git a/docs/release-notes/release-notes-0.18.5.md b/docs/release-notes/release-notes-0.18.5.md
new file mode 100644
index 000000000..c8e24294b
--- /dev/null
+++ b/docs/release-notes/release-notes-0.18.5.md
@@ -0,0 +1,8 @@
+## Bug Fixes
+
+* [Improved user experience](https://github.com/lightningnetwork/lnd/pull/9454)
+ by returning a custom error code when HTLC carries incorrect custom records.
+
+# Contributors (Alphabetical Order)
+
+* Ziggie
diff --git a/htlcswitch/interfaces.go b/htlcswitch/interfaces.go
index 78cb01989..1ea1318ff 100644
--- a/htlcswitch/interfaces.go
+++ b/htlcswitch/interfaces.go
@@ -508,4 +508,9 @@ type AuxTrafficShaper interface {
 	PaymentBandwidth(htlcBlob, commitmentBlob fn.Option[tlv.Blob],
 		linkBandwidth,
 		htlcAmt lnwire.MilliSatoshi) (lnwire.MilliSatoshi, error)
+
+	// IsCustomHTLC returns true if the HTLC carries the set of relevant
+	// custom records to put it under the purview of the traffic shaper,
+	// meaning that it's from a custom channel.
+	IsCustomHTLC(htlcRecords lnwire.CustomRecords) bool
 }
diff --git a/htlcswitch/link.go b/htlcswitch/link.go
index f0e958992..77c8f67e3 100644
--- a/htlcswitch/link.go
+++ b/htlcswitch/link.go
@@ -4164,21 +4164,20 @@ func (l *channelLink) processExitHop(add lnwire.UpdateAddHTLC,
 		return nil
 	}
 
+	// In case the traffic shaper is active, we'll check if the HTLC has
+	// custom records and skip the amount check in the onion payload below.
+	isCustomHTLC := fn.MapOptionZ(
+		l.cfg.AuxTrafficShaper,
+		func(ts AuxTrafficShaper) bool {
+			return ts.IsCustomHTLC(add.CustomRecords)
+		},
+	)
+
 	// As we're the exit hop, we'll double check the hop-payload included in
 	// the HTLC to ensure that it was crafted correctly by the sender and
-	// is compatible with the HTLC we were extended.
-	//
-	// For a special case, if the fwdInfo doesn't have any blinded path
-	// information, and the incoming HTLC had special extra data, then
-	// we'll skip this amount check. The invoice acceptor will make sure we
-	// reject the HTLC if it's not containing the correct amount after
-	// examining the custom data.
-	hasBlindedPath := fwdInfo.NextBlinding.IsSome()
-	customHTLC := len(add.CustomRecords) > 0 && !hasBlindedPath
-	log.Tracef("Exit hop has_blinded_path=%v custom_htlc_bypass=%v",
-		hasBlindedPath, customHTLC)
-
-	if !customHTLC && add.Amount < fwdInfo.AmountToForward {
+	// is compatible with the HTLC we were extended. If an external
+	// validator is active we might bypass the amount check.
+	if !isCustomHTLC && add.Amount < fwdInfo.AmountToForward {
 		l.log.Errorf("onion payload of incoming htlc(%x) has "+
 			"incompatible value: expected <=%v, got %v",
 			add.PaymentHash, add.Amount, fwdInfo.AmountToForward)
diff --git a/invoices/invoiceregistry.go b/invoices/invoiceregistry.go
index cc76d5aef..d9497bf91 100644
--- a/invoices/invoiceregistry.go
+++ b/invoices/invoiceregistry.go
@@ -9,6 +9,7 @@ import (
 	"time"
 
 	"github.com/lightningnetwork/lnd/clock"
+	"github.com/lightningnetwork/lnd/fn/v2"
 	"github.com/lightningnetwork/lnd/lntypes"
 	"github.com/lightningnetwork/lnd/lnwire"
 	"github.com/lightningnetwork/lnd/queue"
@@ -653,56 +654,38 @@ func (i *InvoiceRegistry) startHtlcTimer(invoiceRef InvoiceRef,
 func (i *InvoiceRegistry) cancelSingleHtlc(invoiceRef InvoiceRef,
 	key CircuitKey, result FailResolutionResult) error {
 
-	updateInvoice := func(invoice *Invoice) (*InvoiceUpdateDesc, error) {
+	updateInvoice := func(invoice *Invoice, setID *SetID) (
+		*InvoiceUpdateDesc, error) {
+
 		// Only allow individual htlc cancellation on open invoices.
 		if invoice.State != ContractOpen {
-			log.Debugf("cancelSingleHtlc: invoice %v no longer "+
-				"open", invoiceRef)
+			log.Debugf("CancelSingleHtlc: cannot cancel htlc %v "+
+				"on invoice %v, invoice is no longer open", key,
+				invoiceRef)
 
 			return nil, nil
 		}
 
-		// Lookup the current status of the htlc in the database.
-		var (
-			htlcState HtlcState
-			setID     *SetID
-		)
+		// Also for AMP invoices we fetch the relevant HTLCs, so
+		// the HTLC should be found, otherwise we return an error.
 		htlc, ok := invoice.Htlcs[key]
 		if !ok {
-			// If this is an AMP invoice, then all the HTLCs won't
-			// be read out, so we'll consult the other mapping to
-			// try to find the HTLC state in question here.
-			var found bool
-			for ampSetID, htlcSet := range invoice.AMPState {
-				ampSetID := ampSetID
-				for htlcKey := range htlcSet.InvoiceKeys {
-					if htlcKey == key {
-						htlcState = htlcSet.State
-						setID = &ampSetID
-
-						found = true
-						break
-					}
-				}
-			}
-
-			if !found {
-				return nil, fmt.Errorf("htlc %v not found", key)
-			}
-		} else {
-			htlcState = htlc.State
+			return nil, fmt.Errorf("htlc %v not found on "+
+				"invoice %v", key, invoiceRef)
 		}
 
+		htlcState := htlc.State
+
 		// Cancellation is only possible if the htlc wasn't already
 		// resolved.
 		if htlcState != HtlcStateAccepted {
-			log.Debugf("cancelSingleHtlc: htlc %v on invoice %v "+
+			log.Debugf("CancelSingleHtlc: htlc %v on invoice %v "+
 				"is already resolved", key, invoiceRef)
 
 			return nil, nil
 		}
 
-		log.Debugf("cancelSingleHtlc: cancelling htlc %v on invoice %v",
+		log.Debugf("CancelSingleHtlc: cancelling htlc %v on invoice %v",
 			key, invoiceRef)
 
 		// Return an update descriptor that cancels htlc and keeps
@@ -728,7 +711,7 @@ func (i *InvoiceRegistry) cancelSingleHtlc(invoiceRef InvoiceRef,
 		func(invoice *Invoice) (
 			*InvoiceUpdateDesc, error) {
 
-			updateDesc, err := updateInvoice(invoice)
+			updateDesc, err := updateInvoice(invoice, setID)
 			if err != nil {
 				return nil, err
 			}
@@ -755,8 +738,13 @@ func (i *InvoiceRegistry) cancelSingleHtlc(invoiceRef InvoiceRef,
 			key, int32(htlc.AcceptHeight), result,
 		)
 
+		log.Debugf("Signaling htlc(%v) cancellation of invoice(%v) "+
+			"with resolution(%v) to the link subsystem", key,
+			invoiceRef, result)
+
 		i.notifyHodlSubscribers(resolution)
 	}
+
 	return nil
 }
 
@@ -1086,29 +1074,83 @@ func (i *InvoiceRegistry) notifyExitHopHtlcLocked(
 		updateSubscribers bool
 	)
 	callback := func(inv *Invoice) (*InvoiceUpdateDesc, error) {
+		// First check if this is a replayed htlc and resolve it
+		// according to its current state. We cannot decide differently
+		// once the HTLC has already been processed before.
+		isReplayed, res, err := resolveReplayedHtlc(ctx, inv)
+		if err != nil {
+			return nil, err
+		}
+		if isReplayed {
+			resolution = res
+			return nil, nil
+		}
+
+		// In case the HTLC interceptor cancels the HTLC set, we do NOT
+		// cancel the invoice however we cancel the complete HTLC set.
+		if cancelSet {
+			// If the invoice is not open, something is wrong, we
+			// fail just the HTLC with the specific error.
+			if inv.State != ContractOpen {
+				log.Errorf("Invoice state (%v) is not OPEN, "+
+					"cancelling HTLC set not allowed by "+
+					"external source", inv.State)
+
+				resolution = NewFailResolution(
+					ctx.circuitKey, ctx.currentHeight,
+					ResultInvoiceNotOpen,
+				)
+
+				return nil, nil
+			}
+
+			// The error `ExternalValidationFailed` error
+			// information will be packed in the
+			// `FailIncorrectDetails` msg when sending the msg to
+			// the peer. Error codes are defined by the BOLT 04
+			// specification. The error text can be arbitrary
+			// therefore we return a custom error msg.
+			resolution = NewFailResolution(
+				ctx.circuitKey, ctx.currentHeight,
+				ExternalValidationFailed,
+			)
+
+			// We cancel all HTLCs which are in the accepted state.
+			//
+			// NOTE: The current HTLC is not included because it
+			// was never accepted in the first place.
+			htlcs := inv.HTLCSet(ctx.setID(), HtlcStateAccepted)
+			htlcKeys := fn.KeySet[CircuitKey](htlcs)
+
+			// The external source did cancel the htlc set, so we
+			// cancel all HTLCs in the set. We however keep the
+			// invoice in the open state.
+			//
+			// NOTE: The invoice event loop will still call the
+			// `cancelSingleHTLC` method for MPP payments, however
+			// because the HTLCs are already cancled back it will be
+			// a NOOP.
+			update := &InvoiceUpdateDesc{
+				UpdateType:  CancelHTLCsUpdate,
+				CancelHtlcs: htlcKeys,
+				SetID:       setID,
+			}
+
+			return update, nil
+		}
+
 		updateDesc, res, err := updateInvoice(ctx, inv)
 		if err != nil {
 			return nil, err
 		}
 
+		// Set resolution in outer scope only after successful update.
+		resolution = res
+
 		// Only send an update if the invoice state was changed.
 		updateSubscribers = updateDesc != nil &&
 			updateDesc.State != nil
 
-		// Assign resolution to outer scope variable.
-		if cancelSet {
-			// If a cancel signal was set for the htlc set, we set
-			// the resolution as a failure with an underpayment
-			// indication. Something was wrong with this htlc, so
-			// we probably can't settle the invoice at all.
-			resolution = NewFailResolution(
-				ctx.circuitKey, ctx.currentHeight,
-				ResultAmountTooLow,
-			)
-		} else {
-			resolution = res
-		}
-
 		return updateDesc, nil
 	}
 
@@ -1417,6 +1459,8 @@ func (i *InvoiceRegistry) cancelInvoiceImpl(ctx context.Context,
 	}
 
 	invoiceRef := InvoiceRefByHash(payHash)
+
+	// We pass a nil setID which means no HTLCs will be read out.
 	invoice, err := i.idb.UpdateInvoice(ctx, invoiceRef, nil, updateInvoice)
 
 	// Implement idempotency by returning success if the invoice was already
@@ -1443,6 +1487,8 @@ func (i *InvoiceRegistry) cancelInvoiceImpl(ctx context.Context,
 	// that are waiting for resolution. Any htlcs that were already canceled
 	// before, will be notified again. This isn't necessary but doesn't hurt
 	// either.
+	//
+	// TODO(ziggie): Also consider AMP HTLCs here.
 	for key, htlc := range invoice.Htlcs {
 		if htlc.State != HtlcStateCanceled {
 			continue
diff --git a/invoices/invoiceregistry_test.go b/invoices/invoiceregistry_test.go
index 3deb6405c..ba110791b 100644
--- a/invoices/invoiceregistry_test.go
+++ b/invoices/invoiceregistry_test.go
@@ -20,6 +20,7 @@ import (
 	"github.com/lightningnetwork/lnd/lnwire"
 	"github.com/lightningnetwork/lnd/record"
 	"github.com/lightningnetwork/lnd/sqldb"
+	"github.com/stretchr/testify/mock"
 	"github.com/stretchr/testify/require"
 )
 
@@ -108,12 +109,20 @@ func TestInvoiceRegistry(t *testing.T) {
 			name: "SpontaneousAmpPayment",
 			test: testSpontaneousAmpPayment,
 		},
+		{
+			name: "FailPartialMPPPaymentExternal",
+			test: testFailPartialMPPPaymentExternal,
+		},
+		{
+			name: "FailPartialAMPPayment",
+			test: testFailPartialAMPPayment,
+		},
 	}
 
 	makeKeyValueDB := func(t *testing.T) (invpkg.InvoiceDB,
 		*clock.TestClock) {
 
-		testClock := clock.NewTestClock(testNow)
+		testClock := clock.NewTestClock(testTime)
 		db, err := channeldb.MakeTestInvoiceDB(
 			t, channeldb.OptionClock(testClock),
 		)
@@ -147,7 +156,7 @@ func TestInvoiceRegistry(t *testing.T) {
 			},
 		)
 
-		testClock := clock.NewTestClock(testNow)
+		testClock := clock.NewTestClock(testTime)
 
 		return invpkg.NewSQLStore(executor, testClock), testClock
 	}
@@ -204,7 +213,7 @@ func testSettleInvoice(t *testing.T,
 	require.Equal(t, subscription.PayHash(), &testInvoicePaymentHash)
 
 	// Add the invoice.
-	testInvoice := newInvoice(t, false)
+	testInvoice := newInvoice(t, false, false)
 	addIdx, err := ctx.registry.AddInvoice(
 		ctxb, testInvoice, testInvoicePaymentHash,
 	)
@@ -395,7 +404,7 @@ func testCancelInvoiceImpl(t *testing.T, gc bool,
 	require.Equal(t, subscription.PayHash(), &testInvoicePaymentHash)
 
 	// Add the invoice.
-	testInvoice := newInvoice(t, false)
+	testInvoice := newInvoice(t, false, false)
 	_, err = ctx.registry.AddInvoice(
 		ctxb, testInvoice, testInvoicePaymentHash,
 	)
@@ -555,7 +564,7 @@ func testSettleHoldInvoice(t *testing.T,
 	require.Equal(t, subscription.PayHash(), &testInvoicePaymentHash)
 
 	// Add the invoice.
-	invoice := newInvoice(t, true)
+	invoice := newInvoice(t, true, false)
 	_, err = registry.AddInvoice(ctxb, invoice, testInvoicePaymentHash)
 	require.NoError(t, err)
 
@@ -716,7 +725,7 @@ func testCancelHoldInvoice(t *testing.T,
 	ctxb := context.Background()
 
 	// Add the invoice.
-	invoice := newInvoice(t, true)
+	invoice := newInvoice(t, true, false)
 	_, err = registry.AddInvoice(ctxb, invoice, testInvoicePaymentHash)
 	require.NoError(t, err)
 
@@ -1043,7 +1052,7 @@ func testMppPayment(t *testing.T,
 	ctxb := context.Background()
 
 	// Add the invoice.
-	testInvoice := newInvoice(t, false)
+	testInvoice := newInvoice(t, false, false)
 	_, err := ctx.registry.AddInvoice(
 		ctxb, testInvoice, testInvoicePaymentHash,
 	)
@@ -1141,7 +1150,7 @@ func testMppPaymentWithOverpayment(t *testing.T,
 		ctx := newTestContext(t, nil, makeDB)
 
 		// Add the invoice.
-		testInvoice := newInvoice(t, false)
+		testInvoice := newInvoice(t, false, false)
 		_, err := ctx.registry.AddInvoice(
 			ctxb, testInvoice, testInvoicePaymentHash,
 		)
@@ -1432,7 +1441,7 @@ func testHeightExpiryWithRegistryImpl(t *testing.T, numParts int, settle bool,
 
 	// Add a hold invoice, we set a non-nil payment request so that this
 	// invoice is not considered a keysend by the expiry watcher.
-	testInvoice := newInvoice(t, false)
+	testInvoice := newInvoice(t, false, false)
 	testInvoice.HodlInvoice = true
 	testInvoice.PaymentRequest = []byte{1, 2, 3}
 
@@ -1545,7 +1554,7 @@ func testMultipleSetHeightExpiry(t *testing.T,
 	ctx := newTestContext(t, nil, makeDB)
 
 	// Add a hold invoice.
-	testInvoice := newInvoice(t, true)
+	testInvoice := newInvoice(t, true, false)
 
 	ctxb := context.Background()
 	_, err := ctx.registry.AddInvoice(
@@ -2109,3 +2118,326 @@ func testSpontaneousAmpPaymentImpl(
 		}
 	}
 }
+
+// testFailPartialMPPPaymentExternal tests that the HTLC set is cancelled back
+// as soon as the HTLC interceptor denies one of the HTLCs.
+func testFailPartialMPPPaymentExternal(t *testing.T,
+	makeDB func(t *testing.T) (invpkg.InvoiceDB, *clock.TestClock)) {
+
+	t.Parallel()
+
+	mockHtlcInterceptor := &invpkg.MockHtlcModifier{}
+	cfg := defaultRegistryConfig()
+	cfg.HtlcInterceptor = mockHtlcInterceptor
+	ctx := newTestContext(t, &cfg, makeDB)
+
+	// Add an invoice which we are going to pay via a MPP set.
+	testInvoice := newInvoice(t, false, false)
+
+	ctxb := context.Background()
+	_, err := ctx.registry.AddInvoice(
+		ctxb, testInvoice, testInvoicePaymentHash,
+	)
+	require.NoError(t, err)
+
+	mppPayload := &mockPayload{
+		mpp: record.NewMPP(testInvoiceAmount, [32]byte{}),
+	}
+
+	// Send first HTLC which pays part of the invoice but keeps the invoice
+	// in an open state because the amount is less than the invoice amount.
+	hodlChan1 := make(chan interface{}, 1)
+	resolution, err := ctx.registry.NotifyExitHopHtlc(
+		testInvoicePaymentHash, testInvoice.Terms.Value/3,
+		testHtlcExpiry, testCurrentHeight, getCircuitKey(1),
+		hodlChan1, nil, mppPayload,
+	)
+	require.NoError(t, err)
+	require.Nil(t, resolution, "did not expect direct resolution")
+
+	// Register the expected response from the interceptor so that the
+	// whole HTLC set is cancelled.
+	expectedResponse := invpkg.HtlcModifyResponse{
+		CancelSet: true,
+	}
+	mockHtlcInterceptor.On("Intercept", mock.Anything, mock.Anything).
+		Return(nil, expectedResponse)
+
+	// Send htlc 2. We expect the HTLC to be cancelled because the
+	// interceptor will deny it.
+	resolution, err = ctx.registry.NotifyExitHopHtlc(
+		testInvoicePaymentHash, testInvoice.Terms.Value/2,
+		testHtlcExpiry, testCurrentHeight, getCircuitKey(2), nil,
+		nil, mppPayload,
+	)
+	require.NoError(t, err)
+	failResolution, ok := resolution.(*invpkg.HtlcFailResolution)
+	require.True(t, ok, "expected fail resolution, got: %T", resolution)
+
+	// Make sure the resolution includes the custom error msg.
+	require.Equal(t, invpkg.ExternalValidationFailed,
+		failResolution.Outcome, "expected ExternalValidationFailed, "+
+			"got: %v", failResolution.Outcome)
+
+	// Expect HLTC 1 also to be cancelled because it is part of the cancel
+	// set and the interceptor cancelled the whole set after receiving the
+	// second HTLC.
+	select {
+	case resolution := <-hodlChan1:
+		htlcResolution, _ := resolution.(invpkg.HtlcResolution)
+		failResolution, ok = htlcResolution.(*invpkg.HtlcFailResolution)
+		require.True(
+			t, ok, "expected fail resolution, got: %T",
+			htlcResolution,
+		)
+		require.Equal(
+			t, invpkg.ExternalValidationFailed,
+			failResolution.Outcome, "expected "+
+				"ExternalValidationFailed, got: %v",
+			failResolution.Outcome,
+		)
+
+	case <-time.After(testTimeout):
+		t.Fatal("timeout waiting for HTLC resolution")
+	}
+
+	// Assert that the invoice is still open.
+	inv, err := ctx.registry.LookupInvoice(ctxb, testInvoicePaymentHash)
+	require.NoError(t, err)
+	require.Equal(t, invpkg.ContractOpen, inv.State, "expected "+
+		"OPEN invoice")
+
+	// Now let the invoice expire.
+	currentTime := ctx.clock.Now()
+	ctx.clock.SetTime(currentTime.Add(61 * time.Minute))
+
+	// Make sure the invoices changes to the canceled state.
+	require.Eventuallyf(t, func() bool {
+		inv, err := ctx.registry.LookupInvoice(
+			ctxb, testInvoicePaymentHash,
+		)
+		require.NoError(t, err)
+
+		return inv.State == invpkg.ContractCanceled
+	}, testTimeout, time.Millisecond*100, "invoice not canceled")
+
+	// Fetch the invoice again and compare the number of cancelled HTLCs.
+	inv, err = ctx.registry.LookupInvoice(
+		ctxb, testInvoicePaymentHash,
+	)
+	require.NoError(t, err)
+
+	// Make sure all HTLCs are in the canceled state which in our case is
+	// only the first one because the second HTLC was never added to the
+	// invoice registry in the first place.
+	require.Len(t, inv.Htlcs, 1)
+	require.Equal(
+		t, invpkg.HtlcStateCanceled, inv.Htlcs[getCircuitKey(1)].State,
+	)
+}
+
+// testFailPartialAMPPayment tests the MPP timeout logic for AMP invoices. It
+// makes sure that all HTLCs are cancelled if the full invoice amount is not
+// received. Moreover it points out some TODOs to make AMP invoices more robust.
+func testFailPartialAMPPayment(t *testing.T,
+	makeDB func(t *testing.T) (invpkg.InvoiceDB, *clock.TestClock)) {
+
+	t.Parallel()
+
+	ctx := newTestContext(t, nil, makeDB)
+	ctxb := context.Background()
+
+	const (
+		expiry    = uint32(testCurrentHeight + 20)
+		numShards = 4
+	)
+
+	var (
+		shardAmt = testInvoiceAmount / lnwire.MilliSatoshi(numShards)
+		setID    [32]byte
+		payAddr  [32]byte
+	)
+	_, err := rand.Read(payAddr[:])
+	require.NoError(t, err)
+
+	// Create an AMP invoice we are going to pay via a multi-part payment.
+	ampInvoice := newInvoice(t, false, true)
+
+	// An AMP invoice is referenced by the payment address.
+	ampInvoice.Terms.PaymentAddr = payAddr
+
+	_, err = ctx.registry.AddInvoice(
+		ctxb, ampInvoice, testInvoicePaymentHash,
+	)
+	require.NoError(t, err)
+
+	// Generate a random setID for the HTLCs.
+	_, err = rand.Read(setID[:])
+	require.NoError(t, err)
+
+	htlcPayload1 := &mockPayload{
+		mpp: record.NewMPP(testInvoiceAmount, payAddr),
+		// We are not interested in settling the AMP HTLC so we don't
+		// use valid shares.
+		amp: record.NewAMP([32]byte{1}, setID, 1),
+	}
+
+	// Send first HTLC which pays part of the invoice.
+	hodlChan1 := make(chan interface{}, 1)
+	resolution, err := ctx.registry.NotifyExitHopHtlc(
+		lntypes.Hash{1}, shardAmt, expiry, testCurrentHeight,
+		getCircuitKey(1), hodlChan1, nil, htlcPayload1,
+	)
+	require.NoError(t, err)
+	require.Nil(t, resolution, "did not expect direct resolution")
+
+	htlcPayload2 := &mockPayload{
+		mpp: record.NewMPP(testInvoiceAmount, payAddr),
+		// We are not interested in settling the AMP HTLC so we don't
+		// use valid shares.
+		amp: record.NewAMP([32]byte{2}, setID, 2),
+	}
+
+	// Send htlc 2 which should be added to the invoice as expected.
+	hodlChan2 := make(chan interface{}, 1)
+	resolution, err = ctx.registry.NotifyExitHopHtlc(
+		lntypes.Hash{2}, shardAmt, expiry, testCurrentHeight,
+		getCircuitKey(2), hodlChan2, nil, htlcPayload2,
+	)
+	require.NoError(t, err)
+	require.Nil(t, resolution, "did not expect direct resolution")
+
+	// Now time-out the HTLCs. The HoldDuration is 30 seconds after the
+	// HTLC will be cancelled.
+	currentTime := ctx.clock.Now()
+	ctx.clock.SetTime(currentTime.Add(35 * time.Second))
+
+	// Expect HLTC 1 to be canceled via the MPPTimeout fail resolution.
+	select {
+	case resolution := <-hodlChan1:
+		htlcResolution, _ := resolution.(invpkg.HtlcResolution)
+		failRes, ok := htlcResolution.(*invpkg.HtlcFailResolution)
+		require.True(
+			t, ok, "expected fail resolution, got: %T", resolution,
+		)
+		require.Equal(
+			t, invpkg.ResultMppTimeout, failRes.Outcome,
+			"expected MPPTimeout, got: %v", failRes.Outcome,
+		)
+
+	case <-time.After(testTimeout):
+		t.Fatal("timeout waiting for HTLC resolution")
+	}
+
+	// Expect HLTC 2 to be canceled via the MPPTimeout fail resolution.
+	select {
+	case resolution := <-hodlChan2:
+		htlcResolution, _ := resolution.(invpkg.HtlcResolution)
+		failRes, ok := htlcResolution.(*invpkg.HtlcFailResolution)
+		require.True(
+			t, ok, "expected fail resolution, got: %T", resolution,
+		)
+		require.Equal(
+			t, invpkg.ResultMppTimeout, failRes.Outcome,
+			"expected MPPTimeout, got: %v", failRes.Outcome,
+		)
+
+	case <-time.After(testTimeout):
+		t.Fatal("timeout waiting for HTLC resolution")
+	}
+
+	// The AMP invoice should still be open.
+	inv, err := ctx.registry.LookupInvoice(ctxb, testInvoicePaymentHash)
+	require.NoError(t, err)
+	require.Equal(t, invpkg.ContractOpen, inv.State, "expected "+
+		"OPEN invoice")
+
+	// Because one HTLC of the set was cancelled we expect the AMPState to
+	// be set to canceled.
+	ampState, ok := inv.AMPState[setID]
+	require.True(t, ok, "expected AMPState to be set")
+	require.Equal(t, invpkg.HtlcStateCanceled, ampState.State, "expected "+
+		"AMPState CANCELED")
+
+	// The following is a bug and should not be allowed because the sub
+	// AMP invoice is already marked as canceled. However LND will accept
+	// other HTLCs to the AMP sub-invoice.
+	//
+	// TODO(ziggie): Fix this bug.
+	htlcPayload3 := &mockPayload{
+		mpp: record.NewMPP(testInvoiceAmount, payAddr),
+		// We are not interested in settling the AMP HTLC so we don't
+		// use valid shares.
+		amp: record.NewAMP([32]byte{3}, setID, 3),
+	}
+
+	// Send htlc 3 which should be added to the invoice as expected.
+	hodlChan3 := make(chan interface{}, 1)
+	resolution, err = ctx.registry.NotifyExitHopHtlc(
+		lntypes.Hash{3}, shardAmt, expiry, testCurrentHeight,
+		getCircuitKey(3), hodlChan3, nil, htlcPayload3,
+	)
+	require.NoError(t, err)
+	require.Nil(t, resolution, "did not expect direct resolution")
+
+	// TODO(ziggie): This is a race condition between the invoice being
+	// cancelled and the htlc being added to the invoice. If we do not wait
+	// here until the HTLC is added to the invoice, the test might fail
+	// because the HTLC will not be resolved.
+	require.Eventuallyf(t, func() bool {
+		inv, err := ctx.registry.LookupInvoice(
+			ctxb, testInvoicePaymentHash,
+		)
+		require.NoError(t, err)
+
+		return len(inv.Htlcs) == 3
+	}, testTimeout, time.Millisecond*100, "HTLC 3 not added to invoice")
+
+	// Now also let the invoice expire the invoice expiry is 1 hour.
+	currentTime = ctx.clock.Now()
+	ctx.clock.SetTime(currentTime.Add(1 * time.Minute))
+
+	// Expect HLTC 3 to be canceled either via the cancelation of the
+	// invoice or because the MPP timeout kicks in.
+	select {
+	case resolution := <-hodlChan3:
+		htlcResolution, _ := resolution.(invpkg.HtlcResolution)
+		failRes, ok := htlcResolution.(*invpkg.HtlcFailResolution)
+		require.True(
+			t, ok, "expected fail resolution, got: %T", resolution,
+		)
+		require.Equal(
+			t, invpkg.ResultMppTimeout, failRes.Outcome,
+			"expected MPPTimeout, got: %v", failRes.Outcome,
+		)
+
+	case <-time.After(testTimeout):
+		t.Fatal("timeout waiting for HTLC resolution")
+	}
+
+	// expire the invoice here.
+	currentTime = ctx.clock.Now()
+	ctx.clock.SetTime(currentTime.Add(61 * time.Minute))
+
+	require.Eventuallyf(t, func() bool {
+		inv, err := ctx.registry.LookupInvoice(
+			ctxb, testInvoicePaymentHash,
+		)
+		require.NoError(t, err)
+
+		return inv.State == invpkg.ContractCanceled
+	}, testTimeout, time.Millisecond*100, "invoice not canceled")
+
+	// Fetch the invoice again and compare the number of cancelled HTLCs.
+	inv, err = ctx.registry.LookupInvoice(
+		ctxb, testInvoicePaymentHash,
+	)
+	require.NoError(t, err)
+
+	// Make sure all HTLCs are in the cancelled state.
+	require.Len(t, inv.Htlcs, 3)
+	for _, htlc := range inv.Htlcs {
+		require.Equal(t, invpkg.HtlcStateCanceled, htlc.State,
+			"expected HTLC to be canceled")
+	}
+}
diff --git a/invoices/invoices.go b/invoices/invoices.go
index 32164cbe1..d6d59b4a0 100644
--- a/invoices/invoices.go
+++ b/invoices/invoices.go
@@ -765,6 +765,9 @@ type InvoiceStateUpdateDesc struct {
 
 // InvoiceUpdateCallback is a callback used in the db transaction to update the
 // invoice.
+// TODO(ziggie): Add the option of additional return values to the callback
+// for example the resolution which is currently assigned via an outer scope
+// variable.
 type InvoiceUpdateCallback = func(invoice *Invoice) (*InvoiceUpdateDesc, error)
 
 // ValidateInvoice assures the invoice passes the checks for all the relevant
diff --git a/invoices/mock.go b/invoices/mock.go
index 5d929c227..68f5f66dc 100644
--- a/invoices/mock.go
+++ b/invoices/mock.go
@@ -86,6 +86,7 @@ func (m *MockInvoiceDB) DeleteCanceledInvoices(ctx context.Context) error {
 
 // MockHtlcModifier is a mock implementation of the HtlcModifier interface.
 type MockHtlcModifier struct {
+	mock.Mock
 }
 
 // Intercept generates a new intercept session for the given invoice.
@@ -94,9 +95,23 @@ type MockHtlcModifier struct {
 // created in the first place, which is only the case if a client is
 // registered.
 func (m *MockHtlcModifier) Intercept(
-	_ HtlcModifyRequest, _ func(HtlcModifyResponse)) error {
+	req HtlcModifyRequest, callback func(HtlcModifyResponse)) error {
 
-	return nil
+	// If no expectations are set, return nil by default.
+	if len(m.ExpectedCalls) == 0 {
+		return nil
+	}
+
+	args := m.Called(req, callback)
+
+	// If a response was provided to the mock, execute the callback with it.
+	if response, ok := args.Get(1).(HtlcModifyResponse); ok &&
+		callback != nil {
+
+		callback(response)
+	}
+
+	return args.Error(0)
 }
 
 // RegisterInterceptor sets the client callback function that will be
diff --git a/invoices/modification_interceptor.go b/invoices/modification_interceptor.go
index 58f5b63d0..c8d6783f5 100644
--- a/invoices/modification_interceptor.go
+++ b/invoices/modification_interceptor.go
@@ -137,9 +137,6 @@ func (s *HtlcModificationInterceptor) Intercept(clientRequest HtlcModifyRequest,
 	// Wait for the client to respond or an error to occur.
 	select {
 	case response := <-responseChan:
-		log.Debugf("Received invoice HTLC interceptor response: %v",
-			response)
-
 		responseCallback(*response)
 
 		return nil
diff --git a/invoices/resolution_result.go b/invoices/resolution_result.go
index f66198f05..5a7d9984d 100644
--- a/invoices/resolution_result.go
+++ b/invoices/resolution_result.go
@@ -120,6 +120,10 @@ const (
 	// ResultAmpReconstruction is returned when the derived child
 	// hash/preimage pairs were invalid for at least one HTLC in the set.
 	ResultAmpReconstruction
+
+	// ExternalValidationFailed is returned when the external validation
+	// failed.
+	ExternalValidationFailed
 )
 
 // String returns a string representation of the result.
@@ -189,6 +193,9 @@ func (f FailResolutionResult) FailureString() string {
 	case ResultAmpReconstruction:
 		return "amp reconstruction failed"
 
+	case ExternalValidationFailed:
+		return "external validation failed"
+
 	default:
 		return "unknown failure resolution result"
 	}
@@ -202,7 +209,8 @@ func (f FailResolutionResult) IsSetFailure() bool {
 		ResultAmpReconstruction,
 		ResultHtlcSetTotalTooLow,
 		ResultHtlcSetTotalMismatch,
-		ResultHtlcSetOverpayment:
+		ResultHtlcSetOverpayment,
+		ExternalValidationFailed:
 
 		return true
 
diff --git a/invoices/test_utils_test.go b/invoices/test_utils_test.go
index 509b92d85..6062b3b80 100644
--- a/invoices/test_utils_test.go
+++ b/invoices/test_utils_test.go
@@ -207,7 +207,7 @@ func getCircuitKey(htlcID uint64) invpkg.CircuitKey {
 // Note that this invoice *does not* have a payment address set. It will
 // create a regular invoice with a preimage is hodl is false, and a hodl
 // invoice with no preimage otherwise.
-func newInvoice(t *testing.T, hodl bool) *invpkg.Invoice {
+func newInvoice(t *testing.T, hodl bool, ampInvoice bool) *invpkg.Invoice {
 	invoice := &invpkg.Invoice{
 		Terms: invpkg.ContractTerm{
 			Value:    testInvoiceAmount,
@@ -217,6 +217,23 @@ func newInvoice(t *testing.T, hodl bool) *invpkg.Invoice {
 		CreationDate: testInvoiceCreationDate,
 	}
 
+	// This makes the invoice an AMP invoice. We do not support AMP hodl
+	// invoices.
+	if ampInvoice {
+		ampFeature := lnwire.NewRawFeatureVector(
+			lnwire.TLVOnionPayloadOptional,
+			lnwire.PaymentAddrOptional,
+			lnwire.AMPRequired,
+		)
+
+		ampFeatures := lnwire.NewFeatureVector(
+			ampFeature, lnwire.Features,
+		)
+		invoice.Terms.Features = ampFeatures
+
+		return invoice
+	}
+
 	// If creating a hodl invoice, we don't include a preimage.
 	if hodl {
 		invoice.HodlInvoice = true
diff --git a/invoices/update.go b/invoices/update.go
index 3137bbbfa..6f7a34f4c 100644
--- a/invoices/update.go
+++ b/invoices/update.go
@@ -109,41 +109,52 @@ func (i invoiceUpdateCtx) acceptRes(
 	return newAcceptResolution(i.circuitKey, outcome)
 }
 
+// resolveReplayedHtlc returns the HTLC resolution for a replayed HTLC. The
+// returned boolean indicates whether the HTLC was replayed or not.
+func resolveReplayedHtlc(ctx *invoiceUpdateCtx, inv *Invoice) (bool,
+	HtlcResolution, error) {
+
+	// Don't update the invoice when this is a replayed htlc.
+	htlc, replayedHTLC := inv.Htlcs[ctx.circuitKey]
+	if !replayedHTLC {
+		return false, nil, nil
+	}
+
+	switch htlc.State {
+	case HtlcStateCanceled:
+		return true, ctx.failRes(ResultReplayToCanceled), nil
+
+	case HtlcStateAccepted:
+		return true, ctx.acceptRes(resultReplayToAccepted), nil
+
+	case HtlcStateSettled:
+		pre := inv.Terms.PaymentPreimage
+
+		// Terms.PaymentPreimage will be nil for AMP invoices.
+		// Set it to the HTLCs AMP Preimage instead.
+		if pre == nil {
+			pre = htlc.AMP.Preimage
+		}
+
+		return true, ctx.settleRes(
+			*pre,
+			ResultReplayToSettled,
+		), nil
+
+	default:
+		return true, nil, errors.New("unknown htlc state")
+	}
+}
+
 // updateInvoice is a callback for DB.UpdateInvoice that contains the invoice
 // settlement logic. It returns a HTLC resolution that indicates what the
 // outcome of the update was.
+//
+// NOTE: Make sure replayed HTLCs are always considered before calling this
+// function.
 func updateInvoice(ctx *invoiceUpdateCtx, inv *Invoice) (
 	*InvoiceUpdateDesc, HtlcResolution, error) {
 
-	// Don't update the invoice when this is a replayed htlc.
-	htlc, ok := inv.Htlcs[ctx.circuitKey]
-	if ok {
-		switch htlc.State {
-		case HtlcStateCanceled:
-			return nil, ctx.failRes(ResultReplayToCanceled), nil
-
-		case HtlcStateAccepted:
-			return nil, ctx.acceptRes(resultReplayToAccepted), nil
-
-		case HtlcStateSettled:
-			pre := inv.Terms.PaymentPreimage
-
-			// Terms.PaymentPreimage will be nil for AMP invoices.
-			// Set it to the HTLCs AMP Preimage instead.
-			if pre == nil {
-				pre = htlc.AMP.Preimage
-			}
-
-			return nil, ctx.settleRes(
-				*pre,
-				ResultReplayToSettled,
-			), nil
-
-		default:
-			return nil, nil, errors.New("unknown htlc state")
-		}
-	}
-
 	// If no MPP payload was provided, then we expect this to be a keysend,
 	// or a payment to an invoice created before we started to require the
 	// MPP payload.
diff --git a/itest/list_on_test.go b/itest/list_on_test.go
index 6de56605b..2cf71feec 100644
--- a/itest/list_on_test.go
+++ b/itest/list_on_test.go
@@ -406,14 +406,6 @@ var allTestCases = []*lntest.TestCase{
 		Name:     "forward interceptor",
 		TestFunc: testForwardInterceptorBasic,
 	},
-	{
-		Name:     "forward interceptor modified htlc",
-		TestFunc: testForwardInterceptorModifiedHtlc,
-	},
-	{
-		Name:     "forward interceptor wire records",
-		TestFunc: testForwardInterceptorWireRecords,
-	},
 	{
 		Name:     "forward interceptor restart",
 		TestFunc: testForwardInterceptorRestart,
diff --git a/itest/lnd_forward_interceptor_test.go b/itest/lnd_forward_interceptor_test.go
index 93012c98f..7a6888a57 100644
--- a/itest/lnd_forward_interceptor_test.go
+++ b/itest/lnd_forward_interceptor_test.go
@@ -10,7 +10,6 @@ import (
 	"github.com/btcsuite/btcd/btcutil"
 	"github.com/lightningnetwork/lnd/chainreg"
 	"github.com/lightningnetwork/lnd/lnrpc"
-	"github.com/lightningnetwork/lnd/lnrpc/invoicesrpc"
 	"github.com/lightningnetwork/lnd/lnrpc/routerrpc"
 	"github.com/lightningnetwork/lnd/lntest"
 	"github.com/lightningnetwork/lnd/lntest/node"
@@ -346,223 +345,6 @@ func testForwardInterceptorBasic(ht *lntest.HarnessTest) {
 	}
 }
 
-// testForwardInterceptorModifiedHtlc tests that the interceptor can modify the
-// amount and custom records of an intercepted HTLC and resume it.
-func testForwardInterceptorModifiedHtlc(ht *lntest.HarnessTest) {
-	const chanAmt = btcutil.Amount(300000)
-	p := lntest.OpenChannelParams{Amt: chanAmt}
-
-	// Initialize the test context with 3 connected nodes.
-	cfgs := [][]string{nil, nil, nil}
-
-	// Open and wait for channels.
-	_, nodes := ht.CreateSimpleNetwork(cfgs, p)
-	alice, bob, carol := nodes[0], nodes[1], nodes[2]
-
-	// Init the scenario.
-	ts := &interceptorTestScenario{
-		ht:    ht,
-		alice: alice,
-		bob:   bob,
-		carol: carol,
-	}
-
-	// Connect an interceptor to Bob's node.
-	bobInterceptor, cancelBobInterceptor := bob.RPC.HtlcInterceptor()
-
-	// We're going to modify the payment amount and want Carol to accept the
-	// payment, so we set up an invoice acceptor on Dave.
-	carolAcceptor, carolCancel := carol.RPC.InvoiceHtlcModifier()
-	defer carolCancel()
-
-	// Prepare the test cases.
-	invoiceValueAmtMsat := int64(20_000_000)
-	req := &lnrpc.Invoice{ValueMsat: invoiceValueAmtMsat}
-	addResponse := carol.RPC.AddInvoice(req)
-	invoice := carol.RPC.LookupInvoice(addResponse.RHash)
-	tc := &interceptorTestCase{
-		amountMsat: invoiceValueAmtMsat,
-		invoice:    invoice,
-		payAddr:    invoice.PaymentAddr,
-	}
-
-	// We initiate a payment from Alice.
-	done := make(chan struct{})
-	go func() {
-		// Signal that all the payments have been sent.
-		defer close(done)
-
-		ts.sendPaymentAndAssertAction(tc)
-	}()
-
-	// We start the htlc interceptor with a simple implementation that saves
-	// all intercepted packets. These packets are held to simulate a
-	// pending payment.
-	packet := ht.ReceiveHtlcInterceptor(bobInterceptor)
-
-	// Resume the intercepted HTLC with a modified amount and custom
-	// records.
-	customRecords := make(map[uint64][]byte)
-
-	// Add custom records entry.
-	crKey := uint64(65537)
-	crValue := []byte("custom-records-test-value")
-	customRecords[crKey] = crValue
-
-	// Modify the amount of the HTLC, so we send out less than the original
-	// amount.
-	const modifyAmount = 5_000_000
-	newOutAmountMsat := packet.OutgoingAmountMsat - modifyAmount
-	err := bobInterceptor.Send(&routerrpc.ForwardHtlcInterceptResponse{
-		IncomingCircuitKey:   packet.IncomingCircuitKey,
-		OutAmountMsat:        newOutAmountMsat,
-		OutWireCustomRecords: customRecords,
-		Action:               actionResumeModify,
-	})
-	require.NoError(ht, err, "failed to send request")
-
-	invoicePacket := ht.ReceiveInvoiceHtlcModification(carolAcceptor)
-	require.EqualValues(
-		ht, newOutAmountMsat, invoicePacket.ExitHtlcAmt,
-	)
-	amtPaid := newOutAmountMsat + modifyAmount
-	err = carolAcceptor.Send(&invoicesrpc.HtlcModifyResponse{
-		CircuitKey: invoicePacket.ExitHtlcCircuitKey,
-		AmtPaid:    &amtPaid,
-	})
-	require.NoError(ht, err, "carol acceptor response")
-
-	// Cancel the context, which will disconnect Bob's interceptor.
-	cancelBobInterceptor()
-
-	// Make sure all goroutines are finished.
-	select {
-	case <-done:
-	case <-time.After(defaultTimeout):
-		require.Fail(ht, "timeout waiting for sending payment")
-	}
-
-	// Assert that the payment was successful.
-	var preimage lntypes.Preimage
-	copy(preimage[:], invoice.RPreimage)
-	ht.AssertPaymentStatus(alice, preimage, lnrpc.Payment_SUCCEEDED)
-}
-
-// testForwardInterceptorWireRecords tests that the interceptor can read any
-// wire custom records provided by the sender of a payment as part of the
-// update_add_htlc message.
-func testForwardInterceptorWireRecords(ht *lntest.HarnessTest) {
-	const chanAmt = btcutil.Amount(300000)
-	p := lntest.OpenChannelParams{Amt: chanAmt}
-
-	// Initialize the test context with 4 connected nodes.
-	cfgs := [][]string{nil, nil, nil, nil}
-
-	// Open and wait for channels.
-	_, nodes := ht.CreateSimpleNetwork(cfgs, p)
-	alice, bob, carol, dave := nodes[0], nodes[1], nodes[2], nodes[3]
-
-	// Connect an interceptor to Bob's node.
-	bobInterceptor, cancelBobInterceptor := bob.RPC.HtlcInterceptor()
-	defer cancelBobInterceptor()
-
-	// Also connect an interceptor on Carol's node to check whether we're
-	// relaying the TLVs send in update_add_htlc over Alice -> Bob on the
-	// Bob -> Carol link.
-	carolInterceptor, cancelCarolInterceptor := carol.RPC.HtlcInterceptor()
-	defer cancelCarolInterceptor()
-
-	// We're going to modify the payment amount and want Dave to accept the
-	// payment, so we set up an invoice acceptor on Dave.
-	daveAcceptor, daveCancel := dave.RPC.InvoiceHtlcModifier()
-	defer daveCancel()
-
-	req := &lnrpc.Invoice{ValueMsat: 20_000_000}
-	addResponse := dave.RPC.AddInvoice(req)
-	invoice := dave.RPC.LookupInvoice(addResponse.RHash)
-
-	customRecords := map[uint64][]byte{
-		65537: []byte("test"),
-	}
-	sendReq := &routerrpc.SendPaymentRequest{
-		PaymentRequest:        invoice.PaymentRequest,
-		TimeoutSeconds:        int32(wait.PaymentTimeout.Seconds()),
-		FeeLimitMsat:          noFeeLimitMsat,
-		FirstHopCustomRecords: customRecords,
-	}
-	ht.SendPaymentAssertInflight(alice, sendReq)
-
-	// We start the htlc interceptor with a simple implementation that saves
-	// all intercepted packets. These packets are held to simulate a
-	// pending payment.
-	packet := ht.ReceiveHtlcInterceptor(bobInterceptor)
-	require.Equal(ht, lntest.CustomRecordsWithUnendorsed(
-		customRecords,
-	), packet.InWireCustomRecords)
-
-	// Just resume the payment on Bob.
-	err := bobInterceptor.Send(&routerrpc.ForwardHtlcInterceptResponse{
-		IncomingCircuitKey: packet.IncomingCircuitKey,
-		Action:             actionResume,
-	})
-	require.NoError(ht, err, "failed to send request")
-
-	// Assert that the Alice -> Bob custom records in update_add_htlc are
-	// not propagated on the Bob -> Carol link, just an endorsement signal.
-	packet = ht.ReceiveHtlcInterceptor(carolInterceptor)
-	require.Equal(ht, lntest.CustomRecordsWithUnendorsed(nil),
-		packet.InWireCustomRecords)
-
-	// We're going to tell Carol to forward 5k sats less to Dave. We need to
-	// set custom records on the HTLC as well, to make sure the HTLC isn't
-	// rejected outright and actually gets to the invoice acceptor.
-	const modifyAmount = 5_000_000
-	newOutAmountMsat := packet.OutgoingAmountMsat - modifyAmount
-	err = carolInterceptor.Send(&routerrpc.ForwardHtlcInterceptResponse{
-		IncomingCircuitKey:   packet.IncomingCircuitKey,
-		OutAmountMsat:        newOutAmountMsat,
-		OutWireCustomRecords: customRecords,
-		Action:               actionResumeModify,
-	})
-	require.NoError(ht, err, "carol interceptor response")
-
-	// The payment should get to Dave, and we should be able to intercept
-	// and modify it, telling Dave to accept it.
-	invoicePacket := ht.ReceiveInvoiceHtlcModification(daveAcceptor)
-	require.EqualValues(
-		ht, newOutAmountMsat, invoicePacket.ExitHtlcAmt,
-	)
-	amtPaid := newOutAmountMsat + modifyAmount
-	err = daveAcceptor.Send(&invoicesrpc.HtlcModifyResponse{
-		CircuitKey: invoicePacket.ExitHtlcCircuitKey,
-		AmtPaid:    &amtPaid,
-	})
-	require.NoError(ht, err, "dave acceptor response")
-
-	// Assert that the payment was successful.
-	var preimage lntypes.Preimage
-	copy(preimage[:], invoice.RPreimage)
-	ht.AssertPaymentStatus(
-		alice, preimage, lnrpc.Payment_SUCCEEDED,
-		func(p *lnrpc.Payment) error {
-			recordsEqual := reflect.DeepEqual(
-				p.FirstHopCustomRecords,
-				lntest.CustomRecordsWithUnendorsed(
-					customRecords,
-				),
-			)
-			if !recordsEqual {
-				return fmt.Errorf("expected custom records to "+
-					"be equal, got %v expected %v",
-					p.FirstHopCustomRecords,
-					sendReq.FirstHopCustomRecords)
-			}
-
-			return nil
-		},
-	)
-}
-
 // testForwardInterceptorRestart tests that the interceptor can read any wire
 // custom records provided by the sender of a payment as part of the
 // update_add_htlc message and that those records are persisted correctly and
diff --git a/itest/lnd_invoice_acceptor_test.go b/itest/lnd_invoice_acceptor_test.go
index e94d81551..9195b102e 100644
--- a/itest/lnd_invoice_acceptor_test.go
+++ b/itest/lnd_invoice_acceptor_test.go
@@ -116,6 +116,7 @@ func testInvoiceHtlcModifierBasic(ht *lntest.HarnessTest) {
 			&invoicesrpc.HtlcModifyResponse{
 				CircuitKey: modifierRequest.ExitHtlcCircuitKey,
 				AmtPaid:    &amtPaid,
+				CancelSet:  tc.cancelSet,
 			},
 		)
 		require.NoError(ht, err, "failed to send request")
@@ -128,7 +129,9 @@ func testInvoiceHtlcModifierBasic(ht *lntest.HarnessTest) {
 			require.Fail(ht, "timeout waiting for payment send")
 		}
 
-		ht.Log("Ensure invoice status is settled")
+		ht.Logf("Ensure invoice status is expected state %v",
+			tc.finalInvoiceState)
+
 		require.Eventually(ht, func() bool {
 			updatedInvoice := carol.RPC.LookupInvoice(
 				tc.invoice.RHash,
@@ -141,6 +144,13 @@ func testInvoiceHtlcModifierBasic(ht *lntest.HarnessTest) {
 			tc.invoice.RHash,
 		)
 
+		// If the HTLC modifier canceled the incoming HTLC set, we don't
+		// expect any HTLCs in the invoice.
+		if tc.cancelSet {
+			require.Len(ht, updatedInvoice.Htlcs, 0)
+			return
+		}
+
 		require.Len(ht, updatedInvoice.Htlcs, 1)
 		require.Equal(
 			ht, lntest.CustomRecordsWithUnendorsed(
@@ -231,6 +241,10 @@ type acceptorTestCase struct {
 
 	// invoice is the invoice that will be paid.
 	invoice *lnrpc.Invoice
+
+	// cancelSet is a boolean which indicates whether the HTLC modifier
+	// canceled the incoming HTLC set.
+	cancelSet bool
 }
 
 // acceptorTestScenario is a helper struct to hold the test context and provides
@@ -282,6 +296,12 @@ func (c *acceptorTestScenario) prepareTestCases() []*acceptorTestCase {
 				lnwire.MinCustomRecordsTlvType: {1, 2, 3},
 			},
 		},
+		{
+			invoiceAmountMsat: 9000,
+			sendAmountMsat:    1000,
+			finalInvoiceState: lnrpc.Invoice_OPEN,
+			cancelSet:         true,
+		},
 	}
 
 	for _, t := range cases {
diff --git a/lnrpc/invoicesrpc/utils.go b/lnrpc/invoicesrpc/utils.go
index 19ade28fd..096c8305d 100644
--- a/lnrpc/invoicesrpc/utils.go
+++ b/lnrpc/invoicesrpc/utils.go
@@ -187,13 +187,15 @@ func CreateRPCInvoice(invoice *invoices.Invoice,
 		AmtPaidSat:      int64(satAmtPaid),
 		AmtPaidMsat:     int64(invoice.AmtPaid),
 		AmtPaid:         int64(invoice.AmtPaid),
-		State:           state,
-		Htlcs:           rpcHtlcs,
-		Features:        CreateRPCFeatures(invoice.Terms.Features),
-		IsKeysend:       invoice.IsKeysend(),
-		PaymentAddr:     invoice.Terms.PaymentAddr[:],
-		IsAmp:           invoice.IsAMP(),
-		IsBlinded:       invoice.IsBlinded(),
+		// This will be set to SETTLED if at least one of the AMP Sets
+		// is settled (see below).
+		State:       state,
+		Htlcs:       rpcHtlcs,
+		Features:    CreateRPCFeatures(invoice.Terms.Features),
+		IsKeysend:   invoice.IsKeysend(),
+		PaymentAddr: invoice.Terms.PaymentAddr[:],
+		IsAmp:       invoice.IsAMP(),
+		IsBlinded:   invoice.IsBlinded(),
 	}
 
 	rpcInvoice.AmpInvoiceState = make(map[string]*lnrpc.AMPInvoiceState)
diff --git a/routing/bandwidth_test.go b/routing/bandwidth_test.go
index b31d0095a..259f347ba 100644
--- a/routing/bandwidth_test.go
+++ b/routing/bandwidth_test.go
@@ -164,3 +164,7 @@ func (*mockTrafficShaper) ProduceHtlcExtraData(totalAmount lnwire.MilliSatoshi,
 
 	return totalAmount, nil, nil
 }
+
+func (*mockTrafficShaper) IsCustomHTLC(_ lnwire.CustomRecords) bool {
+	return false
+}