In theory VAT should be fairly straightforward, but in reality it frequently causes confusion over who needs to be registered and what can be claimed. Quite simply VAT is a tax that is charged by VAT-registered businesses on most goods and services. Generally speaking, when a VAT-registered business is charged VAT when it buys goods or services, it can reclaim the VAT. Basically, these businesses are acting like tax collectors - charging VAT, collecting the money and, minus VAT they've incurred, handing it over to HMRC.

Businesses have to register for VAT when their taxable turnover for any 12-month period exceeds the VAT registration threshold, which is currently £77,000. However, if the business will only go over the threshold temprarily an exception can be requested from HMRC.

Also, if a business takes over another business that is already VAT registered then it will be required to register. This is based on the assumption that the joint income of the businesses will be over the threshold.

While these are the main reasons for compulsory registration, there are others. For example, if you think your business’ turnover will exceed the threshold within just 30 days or if you are trading outside of the UK.

NOTE: There are late registration penalties and/or failure to notify penalties along with surcharges and interest for late payment.

You might think it's not all that important to have a good understanding of how much money is being paid out each month in expenses, but this knowledge actually allows businesses to keep their taxes in good order, identify trends and, where needed, put new policies in place.

A study by opinionmatters.co.uk has found that around 20% of small businesses don't know how much they are paying out in expenses, with 40% saying that only their accountant knows the monthly expenses costs. Relying on an accountant only isn't an ideal situation as they don't have as full an understanding of your business as you and it's important for business owners to see what the outgoings in their business are. How else can an efficient business be operated?

Do you agree? Do you know how much is paid out in expenses by your business every month? Let us know.

While many sole traders may think they are saving money by carrying out their own bookkeeping, research carried out by Unbiased.co.uk has shown over half might actually be missing out on tax savings because they are not using professional accountants for their bookkeeping. Of those surveyed, just over half admitted to doing their own accounts and a fifth of micro-businesses (which consist of 1-9 employees) were also taking a DIY approach to bookkeeping. Clearly it is a risky route to take, especially with the HMRC crackdown on poor small business accounting, which could land business owners with a hefty fine.

Small businesses are being targeted again with the news that HMRC is contacting over 40,000 sole traders and one man companies who they believe should be paying VAT, which is presently set at a threshold of £73,000.

Businesses need to ensure they are fully aware of the financial situation of their company or risk facing fines up to 100%. At present businesses that aren’t VAT registered, but should be, are being offered a partial amnesty with reduced penalties on the outstanding VAT until 30^th September, 2011. However, the HMRC has reserved the right to hand out fines up to 100% where it believes a business knew it should have been registered but didn’t come forward. How the HMRC will decide whether they believe a business knew they should have been VAT registered is not clear.

Send invoices immediately - Why wait until the end of the month to send invoices when you can invoice as soon as a job is completed. If you wait 15 days to invoice you've already lost 15 days when you could have had the money in your account. Businesses need to be paid as soon as possible, so why wait unnecessarily.

Using online software – The benefit of online software to send invoices is that you can invoice your customers when ever and where ever. In addition, you have the security that all your invoicing information is safe and secure.

Provide a detailed description - All invoices provide a field to write a description of the work you are invoicing for. Not only does fully completing this give customers a feeling of value for money, but it can prevent payment disputes - whether to simply delay payment or due to confusion over what is being invoiced for.

The articles in FT and the Telegraph relate to tax recording and bookkeeping by small and medium sized enterprises (SMEs). HMRC plans to raise an extra £600m over four years by starting trials and paying visits to SMEs to ensure their record-keeping meets the requirements of tax regulations.

According to HMRC’s estimates, 4 in 10 (nearly 2 million) SMEs have inadequate tax records. The programme is implemented to ensure that the current criteria used by tax inspectors successfully identify errors and highlight areas where tax in underpaid.

The first “test and learn” phase will target approximately 1,200 SMEs within the next three months. Tax inspectors will not use their penalty powers unless they discover blatant breaches of tax regulations.