Do You Need an ABN to Invoice Clients?
Before you can work out what an ABN does or whether you need one, you need to know what it is and why it exists.
ABN stands for Australian Business Number and consists of 11 digits. This number helps to identify your business and make 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.
Is there a need for 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.
Additionally, people have to know that without the new number registration it is very difficult to move your business forward.
Why an ABN is important for invoicing clients
Generally, businesses are required to quote an ABN when providing an invoice for any goods or services they have rendered to their customers.
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 49% 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.
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. It is sometimes difficult to know yourself whether the kind of business you are carrying out falls under the category of an enterprise or not. If your business is in the form of trades, carried out on a regular basis, then you must register for ABN.
Additionally, it is important to note here that sometimes even trustees and charities fall under the category for an ABN. It should be noted however, that if you are simply an employee chasing a hobby as your passion, then this is not an enterprise and you do not have to register for an ABN.
If your business is carried out as an enterprise, the next important thing to consider is its turnover – how much you expect to make in a year – as well as how much you can expect to charge on an invoice.
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.