We are going back to basics this week. I find it interesting that something as simple as a number can cause confusion, so we are going to deep dive into the ABN today.
ABN = Australian Business Number. I know it is symantics but you only need to refer to it as an ABN, not ABN Number. I have seen it referred to as an ABN Number even by politicians. You do not need to refer to it as an Australian Business Number Number. That is just the waste of a word.
The ABN was introduced as a public identification record for businesses with the implementation of GST in 2000. An ABN is distinct from a TFN (Tax File Number) which is a private record. All tax payers have a TFN. All Australian businesses should have an ABN.
Australian Business Number
Applies to Businesses only
Tax File Number
Applies to all Taxpayers
The word Business is important. The right to apply for an ABN is only available to businesses. In the early days it was simple to apply for an ABN. You only needed a TFN and the online application was simple. This resulted in many unnecessary ABN’s being granted without there being a genuine business behind it. Recognising this problem, the application process is now more robust with specific questions asked to confirm that there is a genuine business.
So why the need for this public form of identification? It is to enable transactions to take place with knowledge of the business behind the transaction. Are they registered for GST? Is the ABN valid and does it belong to your supplier? It is the responsibility of the person paying a business to check these things.
Yet how often do we check the ABN? This should be a part of your regular bookkeeping routine but it is often overlooked. Many businesses do not understand the requirement to check ABN’s. Is it part of your routine?
Legally, if your supplier does not provide a valid ABN on an invoice, you are required to withhold 47% from the payment and pay that to the ATO. There is an exemption for transactions under $75. I am sure most of your suppliers charge you more than $75.
If you have neglected to withhold this money and the ATO discover this, the 47% withholding will be levied on you. You do not want to get caught with this.
Fun Fact: In 2017 Michael Andrew the Chair of Treasury’s Black Economy Taskforce reported that more than 40% of all ABN’s quoted in the Northern Territory were for Bunnings. The fraudsters are getting tricky and relying on our tardiness at checking these things.
Tradies are part of the Building & Construction industry and are required to provide details of all subcontractors they pay (who are also in the Building & Construction Industry) to the ATO. The report includes the name, ABN, GST withheld and value of the payments made. How easy is it for the ATO to identify payments to non-valid ABN’s, or payments including GST without GST registrations!
It is such a simple thing to check but it can have series consequences if you don’t get this right.
When you are setting up a supplier in your system, always enter their ABN. Most systems now have the option for you to check the ABN when it is entered. There is an algorithm behind ABN’s so a fake ABN should be identified as fake. However, you system will not point out that the ABN does not belong to the supplier (eg the Bunnings problem in the NT), so you should check the name and the GST registration.
If your system does not do that, search ABN lookup in your browser and you will have the opportunity to check the details online. Once you have done this once per supplier you should be fine. Please take the time to do this. You don’t want to be caught out over a simple number.