VAT registration is only compulsory once the turnover of your company exceeds the current government threshold (currently £79,000 for 2013/2014) for any rolling 12 month period.
You can voluntarily register for VAT before you reach this threshold, however. There are pluses and negatives involved in becoming VAT registered. If you can’t envisage your company ever exceeding the threshold, you may prefer not to register which will make your accounting processes much simpler. But be aware that if you should exceed the threshold and fail to register, you will face financial penalties.
Companies that do register, however, are able to claim back the VAT paid on start-up expenses, and they may find that being registered helps them forge stronger relationships with other companies; many companies prefer to deal with VAT registered organisations.
If you decide to become VAT registered, you should complete a VAT1 form, obtainable from HM Revenue and Customs. There is no cost for registering. If you are registering on a voluntary basis, you may be required to prove your intent to trade by supplying the Inland Revenue with invoices that have been paid by your company.
For more information on VAT, visit HM Revenue & Customs and Business Link.