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.

Although you know that you're running a successful company do you sometimes feel that the size of your business is holding you back? The truth is that some customers will have less confidence in your ability than your larger competitors, but the good news is that there are lots of simple and cost effective ways you can create the impression that you are a much bigger business than you really are.

Do you have staff?

Obviously businesses with staff give the impression of being larger, but you can make customers believe you have employees simply by setting up email addresses for, say, sales and marketing. All these emails can be directed to your inbox, but your customers will have no idea.

Unfortunately record keeping isn't the most fascinating area of running your own business, but it's a very important one nonetheless. You cannot underestimate the negative effects of poor record keeping on your business including  paying excess tax, something that could potentially spell disaster for your business. At a minimum you have a legal requirement for everyone who pays tax to keep the records they need to fill in a tax return, for VAT registered businesses there are more specific requirements.

Simply put, though, it can be a challenge and frustrating at times, but it just makes good business sense to keep well organised and accurate records. If you can get this right in the early stages by setting up a system and sticking to it you'll find the process is a lot simpler to keep up-to-date.

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.