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The bad publicity suffered by the Business Secretary over his non-registration for VAT shows the importance of keeping on top of your accounting and legal obligations.

Vince Cable was fined £500 for his failure to register for VAT once his business income passed the £73,000 mandatory registration threshold.

Cable has made his views on tax avoidance very clear since being elected, and becoming the first cabinet minister to be fined for non-payment of taxes will add to his embarrassment.

The Business Secretary's failure to collect around £25,000 of VAT due on his 2009/10 earnings was picked up by his accountants when preparing his annual self assessment return, and the error was promptly corrected.

Cable made around £192,000 in extra earnings during the 2009/10 tax year, on top of his annual salary as an MP of around £66,000.

Lessons for contractors?

Contractors, and other small business owners can learn two key lessons from this news:

Firstly, you should be aware of the VAT registration rules (and tax compliance rules in general):

Anyone operating a business, whether as a sole trader, partnership, or limited company, must register for VAT if their annual business turnover exceeds £73,000, or they think it is likely to do so. You must register for VAT within 30 days of exceeding this threshold.

Limited company contractors will typically register for VAT soon after incorporation, so this particular scenario is less likely to happen in this industry, although contractors should ensure that they know at least the basic workings of Corporation Tax, PAYE and National Insurance rules.

Secondly, don't assume your accountant is always 'on top' of your accounts. Whether or not you are a limited company director, you (and not your accountant) are legally responsible for paying the correct amount of tax, on time.

In Cable's case, the accountant would not necessarily have known the amount of his earnings until it was time to prepare his personal accounts, as he was self employed and not a limited company director.