VAT registration is compulsory if your annual turnover is above the registration threshold (from 1 April 2013 this is £79,000 previously £77,000).
If the turnover of a business exceeds the VAT exemption limit, the business must register for VAT and charge VAT on its sales. Registration can depend on past (historic test) or future (future test) turnover.
VAT Historic test
You must register for VAT with HM Revenue and Customs if your turnover for the past 12 months exceeds the annual registration limit. The trader must notify HMRC no later than 30 days from the end of month VA T threshold is exceeded and VAT will be charged on supplies from 1st of the month after notification. For example if your taxable supplies in the last 12 months of trade to 30 June 2013 are £69,000. The month of July turnover is £20,000 then you VAT threshold will be exceeded in July 2012. You have to notify HMRC by 30 August and VAT will be charged on supplies from 1 September 2012.
VAT Future Test
You must also register for VAT if you expect your turnover in the next 30 days ALONE to exceed the annual limit (which can happen with large, one-off sales, for example). Notification must again be made on form VAT 1 within 30 days of the day on which the trader realises that his supplies in the next 30 days will exceed VAT threshold. Registration has an immediate effect. The trader must charge VAT straightaway (even though he does not have a VAT number at that point). This future test is intended to catch substantial orders. For example you expect an order of £90,000 on 15 January 2012, this ALONE exceeds the VAT threshold, and then you need register for VAT by 14 February 2012 BUT start charging VAT on 15 January 2012. The idea is that future tests are intended to catch substantial orders.