What is turnover?

What counts as turnover?

Turnover, revenue and sales all mean the same thing: the income earned from the business's trade. It excludes money that is not trading income — a loan received, the owner's capital paid in, a grant, or the sale of a van — and for a VAT-registered business it excludes the VAT collected on sales, which belongs to HMRC.

It is measured when the sale is made, not when the money arrives. An invoice raised in March is March turnover even if it is paid in May. Under the cash basis, which many sole traders use for tax, it is measured on receipt instead, which is one reason a tax return and a set of accounts can show different figures for the same year.

It is the first line of the profit and loss account and the most quoted number about any business, and it says nothing about whether the business made money. A £500,000 turnover with £510,000 of costs is a loss.

A worked example

A VAT-registered electrician sends a customer an invoice for £1,200 including VAT. Turnover is £1,000; the other £200 is output VAT, owed to HMRC and never the business's income. Over the year his invoices total £108,000 including VAT, so turnover is £90,000.

His materials, van, insurance and tools cost £38,000, leaving a profit of £52,000. Turnover is what he sold; profit is what he kept. When a lender or a supplier asks about the size of the business, they mean the first number; when HMRC asks what to tax, it means the second.

Why does the VAT threshold use turnover?

Because VAT is a tax on sales, not profit. The registration test looks at taxable turnover over any rolling twelve months, and a business with high sales and thin margins can be required to register while barely making a profit. The threshold figure is on gov.uk; it is the turnover, not the profit, that has to be watched against it.