It’s a legal requirement in many parts of the world – including within the European Union (EU) and the UK – to correctly record the Tax Registration Number (TRN) of every customer and supplier to your business.
We use the acronym TRN, but you may also know it as VRN (VAT Registration Number) or GRN (GST Registration Number).
For your sales, the TRN is often used as a unique identifier, especially for those countries where Electronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing. is required and for intra-EU trade, you not only need the TRN but also need to prove that it is valid if you want to zero-rate the sale.
Many companies make an effort to verify the TRN they are given for their customer is correct (although many do not, even though they are obliged to do so), but how many of you check the TRNs from your suppliers?
Each time your company receives an invoice, you should check the TRN of the supplier to ensure:
- The TRN is valid.
- The registered name and address of the business matches your records.
And why you may ask? Well, with the introduction of Electronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing., things are going to heat up when it comes to recovering your VAT or GST because most tax authorities will, if they are not doing so already, eventually link the ability to recover the VAT or GST based on whether the VAT or GST has already been submitted, as we see in India.
If you are in a country where Electronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing. is being used, the tax authority has every invoice that you enter already in their system, so if you try and recover VAT or GST that does not exist or if the amounts do not match then you may expect some trouble ahead; if not immediately then in the future because there is no such things a data graveyard anymore as the tax authorities can check your data any time they want at a click of a button.
And here are a few other reasons why you may want to make sure your suppliers’ VAT number is valid:
- Your system may be defaulting a tax code so even though your supplier has deregistered and stop charging VAT, you are still capturing it in your system and recovering it from the tax authority.
- Your supplier may have a valid TRN but it’s not theirs and you are going to recover VAT from them that they never paid.
- Your supplier uses a TRN that they made up so they can charge VAT and you will recover it from the tax authority even though there is nothing to recover.
- You are legally obliged to record their TRN and report this to the tax authority.
We all know that charging the correct VAT is the supplier’s responsibility but that only applies if the supplier is legitimate.
So with most of the examples above, it is your responsibility to ensure that the TRN provided by your supplier is correct. And if it’s not and you are recovering VAT, then guess who is now the one committing VAT fraud – internationally or not!
VAT fraud is, unfortunately, rather common because setting up a company and applying for a VAT number can be rather easy. In the UK recently, a Cardiff man thought he had become rather popular when he received over 11,000 letters but it turned out they were all tax bills for Chinese firms, all using his address to commit VAT fraud.
This is why so many tax authorities are introducing measures to reduce the VAT gap, including Electronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing. – and guess what the unique identifier will be that links the customer to the supplier and to the tax authority? Yep, the TRN.
Checking TRNs might seem like a task with only two clear outcomes; either each number you process will be verified by a tax authority or it will be incorrect and therefore rejected.
But that’s not necessarily the case.
In fact, many TRNs are doomed to fail before they even reach the point of verification with a tax authority’s VAT portal because the format in which they are entered is invalid.
The formatting of TRNs
Every country or jurisdiction in the world has unique, specific rules on how TRNs must be presented for verification.
Many countries require certain features of a TRN to match its strict criteria. These can include:
- Character formatting, e.g. a TRN must be a certain amount of letters and numbers.
- Alphanumeric requirements, e.g. certain characters must add up to a pre-determined total.
- Unique identifiers, e.g. some characters will match part of a company’s name or its incorporation date.
- Location, because some countries will issue a different number or format depending on whether the entity is trading just locally or internationally.
If a TRN is not entered in a valid format, it will inevitably fail when passed to a tax authority for verification. Indeed, before portals such as the EU’s VIES and the UK’s HMRC platform even have a chance to assess the details of your TRN, it will be sent back and marked as invalid.
Why invalid TRNs are bad news for your business
Just checking that a TRN is valid is not enough! All 11,000 of those companies registered to a man in Wales had a TRN, all were valid TRNs but did the name and address of your supplier match the name and address of that registered with the tax authority? Just because it is valid does not mean it is valid for your supplier!
If you’re checking thousands of TRNs each month, you’d be forgiven for thinking a certain percentage being found to be invalid is to be expected.
To some extent, that’s true. After all, if all TRNs were valid we wouldn’t have developed the world’s leading TRN validation tool, LimeLyte® Entity Manager, to automate the continuous verification of all of your TRNs, tell you why they failed validation and if the details that the tax authority has matches the details provided by your supplier. As a tax audit tool, it not only checks your data but records it all in a dashboard and alerts users of the invalid numbers in their data sets.
While a small proportion of TRNs will always be invalid for one reason or another (a supplier failing to provide the correct details, going out of business or simply not registering for VAT), allowing many more of your checks to fail because of formatting issues can be hugely damaging in three ways:
- Bad data. By allowing invalid records to circulate within your database, you’re at greater risk of future errors and ultimately non-compliance.
- You could develop a poor reputation with the relevant tax authorities; most of which don’t look favourably upon ‘repeat offenders’ when it comes to uploading invalid TRNs.
- You could unintentionally be recovering VAT/GST when you are not allowed to do so if your previously registered supplier has since de-registered.
So what’s the solution to ensuring every TRN is correctly formatted before it’s verified (or not) by the tax authority?
When used with a TRN, a checksum is an automated process carried out during the validation process to check that the format and number of the TRN is correct (but not necessarily valid).
Think of it like a fishing net where only small fish are allowed through and all the big fish are trapped. In its basic form, each time you run a checksum, a number string is created and divided by the check digit – and if it is a whole number then you get through the net, but if it’s not it is stopped.
How does checksum work for TRN validation?
Take Singapore as an example. A typical TRN in Singapore is SGM12345678X. If broken down:
- SG: Represents the country code for Singapore.
- M: Indicates the type of entity. Different letters are used for different entities, including local companies, foreign companies, partnerships and more.
- 12345678: This is an illustrative eight-digit number. In a real TRN, it would be the main numerical part of the entity’s Unique Entity Number (UEN).
- X: This is an alphabetical check digit. It could be any letter and provides an extra layer of validation.
With checksum, a TRN inputted to LimeLyte® Entity Manager is first checked to ensure a perfect match with these formatting requirements.
If the format of the TRN is valid:
- It is passed to the tax authority via an API for verification.
If the format of the TRN is invalid:
- The user is notified and the TRN is not sent to the tax authority, allowing time for a quick fix to be made or more extensive investigation if required.
There are a small number of exceptions to regular TRN formatting in each country – such as army bases – but for businesses this process will be followed.
Remember that every country in the world has different formatting requirements, so manual checks are near impossible.
LimeLyte® Entity Manager
Our LimeLyte® Entity Manager tool currently automates validation of TRNs in many countries with more being continuously added; and for those that have an API available for us to connect to, we are also verify whether a TRN is valid or invalid.
By using checksum, the platform allows users to enjoy an extra layer of security before verifying TRNs and ensure they are not identified by tax authorities for poor-quality data resulting in a high volume of failed checks.
Perhaps more importantly, it also gives businesses comfort when seeking to check TRNs in countries for which there is no API and full verification is therefore impossible.
When full verification is unavailable yet the legal obligation to check remains, being able to validate the format of TRNs in many other countries around the world to secure the peace of mind that comes from knowing a number is at least compliant with each nation’s unique (and often complex) formatting rules.
And thanks to checksum, this is all possible with LimeLyte® Entity Manager.