Continung this series of Jargon Busting explanations, we turn to SPV which has been used for many years in the business world and also by HMRC VAT.

Dear HMRC

Taxpayers have benefited from recent changes allowing cash accounting for sole traders and simplified company reporting. The press releases accompanying these changes talk  a lot about simplification, with the sub-text that enterprise Britain enables small businesses to deal easily direct with HMRC and companies house. There is no need to pay an accountant so say the politicians.

The reality for small business owners is very different.

You may know that exports are zero rated and think that there's nothing else to worry about. You're expecting to recover VAT on your costs so you're in a net recovery position each month. You might even be thinking of submitting monthly VAT returns to optimise your cashflow.

However, to be correct, you need to be able to agree with the following statement.

All my EU customers are VAT registered.

This probably stems from the more administration required when running a company. It seems to be assumed that this additional administration includes VAT registration. VAT registration is only required when your annual turnover reaches £73,000.

However, many businesses choose to be VAT registered. This can be a sole trader, partnership or limited company business. The reasons to choose to be VAT registered include benefiting from the HMRC flat rate scheme or being eligible for VAT repayments.

This myth may also come from the fact that businesses with low turnovers are less likely to be run as a limited company. This is because the additional costs such as accountants fees may outweigh the financial benefits of a limited company such as tax savings.