Does a sole trader need an ABN?

While there are many, many differences between a sole trader and small, medium, and large businesses, there are several ABN requirements that Australian businesses of all shapes, sizes, and persuasions will often benefit from.

One such ABN requirement for many sole traders is registering for and holding an Australian Business Number, or ABN. The key question here is: who needs an ABN? Does your sole trader business need to register for an ABN? Or is it optional?

As per business.gov.au, an ABN is a primary identifier of a business. It is made up of a unique combination of 11 numbers that identifies a business to all tiers of government, other government entities such as the ATO, and also to the community the business operates in.

Applying for a sole trader ABN

Registering for an ABN as a sole trader is free and can be done via the federal government’s Business Registration Service. In fact, the Australian Business Register notes that an ABN is the simplest and cheapest business structure available to eligible Australian businesses.

Through an ABN a sole trader can:

• claim goods and services tax (GST) credits;
• identify their business to others when ordering and invoicing;
• avoid pay as you go (PAYG) tax on payments they receive;
• get an Australian domain name; and
• claim energy grants credits.

So it goes without saying that having an ABN can be very useful. But is your sole trader business in its current form actually required to hold an ABN to trade and conduct business? For sole traders, is an ABN a ‘nice to have’ or a ‘must-have’ for business?

Sole trader ABN requirements

So, does your sole trader business actually need an ABN? Well, it may not necessarily be a cut and dried answer for every sole trader, so it is best to seek the advice of a professional like an accountant or a business advisor for your business. As a general guide you should consider the following:

Technically speaking, there is no legal need to apply for an ABN until your sole trader business reaches $75,000 in annual turnover. So, if your sole trader gig is more of a side hustle or a hobby, as opposed to a full-blown business concern, there’s really no need to obtain an ABN just yet. And in fact, not all businesses are entitled to an ABN. You are entitled to apply for an ABN if you are:

• carrying on or starting an enterprise in Australia.
• making supplies connected with Australia’s indirect tax zone.
• a Corporations Act company.

Should you apply for an ABN even if you’re not required to?

So, let’s say that your new business or side hustle is bubbling along nicely and gaining steam, but it has not yet reached the threshold where you are required by law to obtain an ABN. Does that mean that you can’t apply for one? Not necessarily.

There are certain circumstances in which obtaining an ABN can benefit your business, even if your business isn’t yet legally required to hold an ABN. Here are some pros for obtaining an ABN even if you’re not legally required to just yet.

Make it official: Register your sole trader ABN

You want your business to come across as official and formalised, with all the i’s dotted and t’s crossed. A business name means your business will present as far more professional than simply using your own god-given name.

If you don’t have an ABN you can’t register a business name; meaning you’ll need to use your own given name on invoices, purchase orders, and so on. And without an official name for your business, it’s very hard to look professional and present as a leading expert in your field.

If a client receives an invoice from you without an ABN they may start questioning the legitimacy of your entire operation. Some businesses may also prefer to only do business with companies that hold an ABN.

Avoid withholding tax

With your ABN in place, you’ll be able to quote it on the tax invoices you send to clients. And in doing so you’ll avoid the risk of your clients being required by law to withhold tax from your payments. The withholding tax rate is nothing to sneeze at and is generally at the top tax rate, so it’s certainly worth avoiding it whenever possible.

Secure your domain name

One of the first orders of business for any sole trader is setting up a website for their business. If you plan on launching a snazzy website for your business, you’ll need an ABN to register a com.au domain name. This is more important than it may seem, because without a business name or ABN you may be reduced to using a .net or .org domain name – never a good look for a business website.

Look the part

Having the formal business bells and whistles – an ABN and a registered business name, to name just two – goes a long way to positioning and presenting your business as a real and legitimate entity. Never underestimate the importance of projecting professionalism to new and existing clients and suppliers.

If you’re doing business with a builder or a client, having to give them an invoice without an ABN can make you look less like a real business. On the other hand, having an ABN and optional business name confirms to your clients that you are indeed a real business.

Have you registered your sole trader ABN? If not, you may want to register your sole trader business for an ABN sooner rather than later. You can do so now through the Business Registration Service website.

While you’re hard at it growing your sole trader business, let us lend a hand by simplifying your business insurance*. Business insurance shouldn’t be hard, time-consuming, or painful; in fact, we’ve made it our mission to ensure insurance isn’t any of those nasty things. Go online for sole trader business insurance or give us a call 1300 920 864 to see how we can help protect your sole trading business.