Business turnover is one of the most important KPIs in a business, often used as a yardstick to measure a business’ health, growth and success. You’ll also need to calculate it when you fill in your tax return – show too much and you’ll pay too much tax, show too little and you could face penalties. So what is business turnover and how do you calculate it in your business? Let me show you.
What is Business Turnover
Business turnover is defined as the total sales (revenue) generated by a business before deducting expenses.
It’s all the sales you have generated in your business for work you have carried out or the product you have sold. Business turnover does not include money earned as interest or business loans. These are dealt with in a different way for both taxes and in accounting.
How to Calculate Business Turnover
Business turnover is fairly straight forward to calculate, you just add up all the sales made during a period of time. If you want to calculate your business turnover you’ll need to look through your business records and add up your sales (before any deductions) from things like:
You’ll need to calculate your business turnover when completing out your self-assessment tax return, totalling up everything you have earned in the tax year. The figures you use must be GROSS. That means before any deductions. So if you are a self-employed uber driver, for example, you’ll need to pick up your income before any Uber deductions.
Don’t worry, you’ll be able to get tax relief on any fees deducted from your earnings when you enter your expenses into your tax return. You’ll find the figures you need by referring back to all the places you collected money like:
- Cash takings records;
- Bank statements;
- Online accounts like eBay, Amazon, Shopify or payment processing solution for your own Website.
The actual figures you need to add up depends on whether you use the cash basis or traditional accounting.
How is Business Turnover Calculated Using the Cash Basis v Traditional Accounting
So if you have invoiced a customer but they have not paid you, then you don’t need to include it in your business turnover calculation. This method works great for self-employed business owners because it means they only pay tax on the money they have actually been paid.
If you don’t use the cash basis you’ll need to include all the money you have earned during your accounting period, whether it has been paid to you or not. Any money that is owed to you or you owe suppliers at the end of the tax year are known as trade debtors and trade creditors.
Business Turnover v Business Profit
Turnover and profit are often confused. Profit refers to the amount of money a business makes after deducting expenses whereas turnover refers to sales made before expenses. Both turnover and profit are important but some say that profit is more important because without it a business simply can’t survive.
- Unpaid invoices;
- Online payments that arrive after the end of your accounting period but cover earnings during that time.
Does Business Turnover Include VAT?
If you are VAT registered then you must not include any VAT you have charged in your business turnover. That’s because when you are VAT registered, you are simply collecting VAT on behalf of HMRC. So VAT is not part of your earnings.
If you are not registered for VAT, then you’ll need to show the numbers on your tax return inclusive of VAT.
Tips on Calculating Your Business Turnover for Your Self-Assessment Tax Return
If you are struggling to get started adding up your business turnover, here are some tips to get you going:
- Write down your accounting period;
- List out all your sources of income during your accounting period;
- Run through your paperwork and list out all income received during your accounting period;
- Find amounts you were paid that are net of charges, fees or other deductions;
- Find statements and documentation that relate to the amounts in #4;
- Note down all charges, fees or other deductions from the statements in #5;
- Add back all deductions and charges to the figures in #4 to show your gross business turnover (that means before any deductions);
- If you are using traditional accounting, adjust for any unpaid invoices or money you are owed on the last day of your accounting period.