Business turnover is a crucial Key Performance Indicator (KPI) that serves as a benchmark for assessing a business’s health, growth, and success. It’s also an essential figure when completing your tax return. However, calculating it accurately is vital—overstating turnover can lead to higher taxes, while understating it may result in penalties. So, what exactly is business turnover, and how do you calculate it? This guide will explain the concept of turnover in business, how to determine it, and what you need to include on your tax return if you’re self-employed.

​

Table of Contents

1. What is Business Turnover?

2. How to Calculate Turnover in Business

3. How is Business Turnover Calculated Using the Cash Basis vs. Traditional Accounting?

4. Business Turnover vs. Business Profit

5. Does Turnover Include VAT?

6. How to Calculate Total Turnover for Your Self-Employed Tax Return

7. Where to Include Business Income on Your Self-Assessment Tax Return

Friendly Disclaimer: While I am an accountant, I’m not your accountant. The information in this article is legally accurate but intended for guidance and informational purposes only. Everyone’s situation is unique, so use your best judgment when applying this advice to your circumstances. If you’re unsure or have any questions, consult a qualified professional, as mistakes can lead to penalties.

​

1. What is Business Turnover?

​

Business turnover is defined as the total revenue generated by a business before deducting any expenses. It represents the total income from all sales of goods or services made by the business. Turnover does not include income earned as interest or received through business loans, as these are accounted for differently in your financial records and tax return.

​

2. How to Calculate Turnover in Business

​

Business turnover is calculated by summing all sales made within a specific period. To determine your business turnover, you’ll need to review your business records and add up the total sales (before any deductions) from sources such as:

• Sales invoices

• Bank statements

• Cash sales

• Marketplace statements (e.g., eBay, Etsy, Amazon)

When filling out your self-assessment tax return, you must calculate your business turnover by totaling all earnings within the tax year. The figures you report should be gross, meaning they include income before any deductions. For example, if you’re a self-employed Uber driver, you’ll need to sum your income before Uber deducts any fees.

Don’t worry—you can claim tax relief on any fees deducted from your earnings when you enter your expenses on your tax return. You’ll find the necessary figures in records like:

• Cash takings logs

• Invoices

• Tips

• Bank statements

• Online accounts (e.g., eBay, Amazon, Shopify) or payment processing solutions for your website

The specific figures you need to add up depend on whether you use the cash basis or traditional accounting.

​

3. How is Business Turnover Calculated Using the Cash Basis vs. Traditional Accounting?

​

The simplest way to calculate your business turnover (though it may not be advantageous for everyone) is by using the cash basis. This method involves summing all payments received during your accounting period.

For example, if you’ve invoiced a customer but haven’t been paid yet, you don’t need to include that invoice in your turnover calculation. This approach is beneficial for self-employed individuals, as it means you only pay tax on money you’ve actually received.

If you use traditional accounting, you’ll need to include all income earned during your accounting period, regardless of whether you’ve been paid. Any money owed to you or that you owe to suppliers at the end of the tax year is known as trade debtors and trade creditors.

​

4. Business Turnover vs. 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 the total sales before expenses. While both are important, profit is often considered more critical, as a business cannot survive without it.

​

5. Does Turnover Include VAT?

​

If your business is VAT registered, turnover does not include VAT charged on invoices. This is because VAT is collected on behalf of HMRC and is not part of your business’s income. However, if you’re not VAT registered, you’ll need to include VAT-inclusive amounts for both turnover and expenses on your self-employed tax return.

​

6. How to Calculate Total Turnover for Your Self-Employed Tax Return

​

If you’re unsure where to start when calculating your business turnover for self-assessment, here are some tips to help you get started:

1. Write down your accounting period.

2. List all sources of income during that period.

3. Review your records and list all income received during the period.

4. Find amounts paid to you net of charges, fees, or other deductions.

5. Locate statements and documents related to these amounts.

6. Note all charges, fees, or other deductions.

7. Add back all deductions to the figures to calculate your gross business turnover (before any deductions).

8. If using traditional accounting, adjust for any unpaid invoices (trade debtors) or money owed to you on the last day of your accounting period.

​

7. Where to Include Business Income on Your Self-Assessment Tax Return

​

You’ll need to report your business income in the self-employment section of your tax return. Whether you’re filing a short-form or full tax return, you’ll only need to report your total income in the box labeled ‘Turnover.’

​

Business Turnover on Self-Assessment

​

Regardless of your business turnover, keep a record of what you declare and how you calculated it as part of your business records. This is important in case HMRC conducts an investigation and asks for evidence to verify the amount of tax you’ve paid.

​

​

​

​

​

​

​

​