Do You Need an ABN to Invoice Clients? (Updated, Oct 2021)
Before you can work out what an ABN does or whether you can invoice without an ABN, you need to know what it is and why it exists.
ABN stands for Australian Business Number and consists of 11 digits. Your ABN identifies your business and makes it easy for you to meet the requirements of the Australian government.
If you have a small business then, it is highly advisable to have an ABN to invoice your clients. In many cases it is even a legal requirement of operating a business and could cost you money if you aren’t properly prepared.
Do I need an ABN to Invoice Clients?
Most new entrepreneurs starting their own business ask the question, “Do I need an ABN?” It is very important to note that no matter what new business you are starting, if you meet the requirements, then ABN registration is a must in order to legally invoice your clients.
The government allows anyone starting a business, an enterprise or a company to apply for an ABN. Running an enterprise can include a variety of activities such as self-employed sole traders, someone running a charity, or a person renting out a property. Basically, if you’re in charge of a business operation and you are expecting in invoice clients, you will probably need an ABN.
Additionally, without the Australian Business Number (ABN) registration it can be very difficult to move your business forward.
Can I issue an Invoice without an ABN?
If you are a business (whether that’s a sole trader, partnership, company or trust) you must have an ABN to invoice clients. In cases where a business is required to quote their Australian Business Number, but hasn’t, the party paying the invoice will have to withhold 47% of the invoice amount. This is known as “No ABN Withholding”.
This is a situation that sensible business owners would rather avoid, for a number of reasons. Having excessive portions of pay withheld can seriously disrupt both cashflow and profitability, but it can also create a number of headaches for the business’s bookkeeper and accountant as well.
Generally, businesses are required to quote an ABN when providing an invoice for any goods or services they have rendered to their customers.
All that said, not everybody who needs to send invoices in order to get paid will legally require an Australian Business Number to do so.
Do Sole Traders need an ABN?
Another common question is whether or not sole traders need an ABN. However, the answer to this question is not as straight forward. Sole traders are not, by default, required to have an ABN.
The first thing to determine is whether your new operation is considered an ‘enterprise’. If your business is in the form of trades, carried out on a regular basis, or you intend to make a profit then you must register for ABN. Still unsure? Check the government’s guidelines on the differences between a business and a hobby.
If your business is carried out as an enterprise, the next important thing to consider is its turnover. How much do you expect to make in a year?
If you have a business whose expected yearly turnover is $75,000 or more, then you will need to register for an ABN. If your turnover is less than this you may not need to register for one. However the ATO recommends that all sole traders operating a business register for an ABN regardless of their revenue. This is because:
- Regardless of your yearly turnover, if the amount on an individual invoice sent is equal to or greater than $82.50 then you must provide a tax invoice that includes an ABN,
- An ABN is required to set up a website and register for a business name,
- You may be subject to ‘No ABN Withholding’,
- ABN’s are free and make running your business easier, particularly if you have to register for other taxes (like GST).
Additionally, it is important to note here that sometimes even trustees and charities fall under the category of needing an ABN.
Can my hobby invoice without an ABN?
Maybe you’re thinking about starting a side-hustle or indulging in a creative outlet. It’s important to know if and when you might need an ABN when selling your good or services.
If you are simply an employee or chasing a hobby as your passion, then this is not considered an enterprise and you do not have to register for an ABN (nor would the ATO even approve your application). If you are invoicing people in the course of private or domestic matters, you do not need to have an ABN. But, as soon as you start invoicing another business they may ask you for your ABN for tax purposes. You should be able to use this Statement by a Supplier Form to explain your reason for not having an ABN and avoid the ‘No ABN Withholding’ that the business may otherwise impose on you for not having an ABN. The statement lets the business know that you are selling the goods or services as your hobby.
How do I register for an ABN?
There are a lot of websites out there that will either charge you money or make you sign up to their services in order to apply for an ABN. However, you don’t need to do any of that. Check out this guide to registering for an ABN for details on the government-approved, free way to check your eligibility and apply for an ABN.
Software makes invoicing easy
Once you have registered for an ABN, and have set off on your business journey, you can avoid being overwhelmed by paperwork, bookkeeping and ATO requirements by using small business accounting software Cashflow Manager. The built-in invoicing software makes creating, customising and even sending invoices a breeze. The magic of Cashflow Manager is that it is designed for small business owners who don’t have any previous accounting experience.
You can easily track your money-in and money-out, create reports in seconds, pay employees and calculate GST automatically. Stop wasting time on manual accounting and download Cashflow Manager.
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- Tax Rates for Sole Traders
- Growth Strategies for Sole Traders
- Guide to Invoicing for Small Businesses