The word ‘turnover’ means the total revenue a business produces throughout the year from sales income. Turnover is the total income generated from goods sold or services provided. So, why is a turnover definition and knowing about business turnover important?
Turnover helps provide a quick overview of business performance. However, it’s a common mistake to confuse turnover with gross income or net profit.
Gross income refers to all the money earned by the company before taxes; it includes turnover but may also draw in other revenue sources such as investment and rental income. Net profit is total sales after deducting expenses.
The annual turnover of your business looks at all your income throughout the year. One of the key questions about calculating turnover is “are turnover calculations done before or after tax”? Well, you can do it either way.
Turnover before tax will show you total sales revenue, whereas turnover after tax can provide you with a more meaningful total, especially for business investment purposes; turnover after tax is a better indicator of profitability and financial performance. The turnover figure before tax is your gross profit or sales margin, and your turnover figure after tax is called your net profit.
Turnover matters. Both turnover figures are useful to indicate the financial health and operational efficiency (or otherwise) of a business.
In this article, we look at how the two different turnover figures can help inform your business strategy, and when is the best time to use each one.
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The Relationship Between Turnover and Tax
Turnover determines tax. The money a business earns is subject to tax so the more you earn (the higher your turnover), the more tax you’ll pay. In reality, the relationship between turnover and tax is a little more nuanced. Naturally, the idea is to reduce tax by setting as many allowable expenses against your income figure as possible.
Here is the relationship between turnover and tax in more detail.
| Turnover | Turnover, in business, means the total amount of income a business makes over a given period (usually a year). It’s essentially the total value of goods and services sold: it can be either, or a combination of the two depending on your business model. It’s usually the first thing you see on any business’ profit and loss statement because it’s such a useful figure, and it’s often the first question an investor will ask.
Measuring turnover allows you to put to one side operating expenses or the cost of any goods before selling; the idea is to deliberately keep this calculation as pared back as possible, as a handy tool to track sales growth. |
| Tax | Turnover has a huge influence on how much tax you pay as a business. Turnover is the main number used for tax calculations to work out exactly what your tax liabilities are. Only by knowing how much money your business has coming in, can you accurately determine how much tax you’ll pay. |
Calculating turnover is important for decision making, as it allows you to set prices more accurately and develop a forward-thinking business strategy. By knowing your business income in its simplest form, you can plan ahead for tax liabilities, ensuring your business isn’t caught out at the end of the financial year.
What Is Employee Turnover?
Employee turnover (or labour turnover, as it’s sometimes known) isn’t something you need to worry about if you’re an independent sole trader working alone. However, for small business owners, employee turnover can be an additional measure to help you track business success.
Employee turnover is the number of employees that have come and gone over the course of a year. Whilst this figure isn’t needed for tax purposes, it can be a great measure of employee satisfaction.
High staff turnover suggests that something is wrong, either in working conditions or potentially salary levels. However, staff turnover doesn’t have any connection to taxable turnover.
What Is Turnover Before Tax (TBT)?
TBT, or turnover before tax, is your total revenue before any tax or expenses are deducted. If you’ve ever watched the hit BBC series ‘Dragon’s Den’, then you’ll know this is typically the first question a dragon investor will ask someone making a pitch for funding. It’s the starting point before you factor in all the various allowable deductions and drill down into profit.
TBT is of just as much interest to HMRC as it is to investors and business owners. It’s usually the figure they’ll use to determine all the business allowances you might be entitled to.
What Is Turnover After Tax?
Turnover after tax is total revenue minus tax deductions and trade discounts. Here, the real term profit is being measured: how much the business actually makes when they deduct their expenses. Turnover after tax can give investors a better idea of profitability and the business’ bottom line. It’s also useful when comparing the profitability of different businesses to help investors decide where to put their money.
Turnover vs Profit
Although the two are linked, turnover and profit are slightly different. You don’t really consider profit at all when you calculate turnover before tax. TBT is simply a snapshot of sales performance and how much money a business has coming in, without worrying about what’s going out.
Turnover after tax is more closely linked with the two key types of profit:
| Gross Profit | Gross profit represents a company’s turnover minus the cost of goods or services sold (COGS) |
| Net Profit | Net profit is business’ turnover minus COGS and expenses such as tax and wages |
It’s easy to see how turnover is relevant to calculating both types of profit. However, turnover after tax is more closely linked to net profit.
Is Turnover Before or After Tax More Important?
That depends on who wants the information and what they want to do with it.
HMRC wants to know turnover before tax because from this they calculate how much tax your business needs to pay. Investors, on the other hand, are likely to be far more interested in turnover after tax because it can help them make informed decisions about just how profitable your business really is.
From a business owner’s perspective, turnover after tax is probably the most influential figure, since it gives you that vital snapshot into actual profitability and your business’ overall financial performance.
However, make no mistake, both figures are important for any business owner to know. Turnover before tax and turnover after tax inform business strategy and give you an instant view of what’s coming into the business and what’s going out.
How Can You Improve Your Turnover?
Since turnover is a marker of business success, a key focus is how you can improve it:
- Pick your products and services wisely – make them especially relevant to your target audience to increase earning potential. Identify market trends and don’t be afraid to make changes.
- Price is everything – choose a price that is neither too expensive nor too cheap; you have to make money as a business, but pricing is always sensitive. Set prices too high and your customers won’t return. Accurate market research can help you determine when to move your prices as part of a dynamic pricing strategy.
- Make use of business marketing – branding and marketing is key to ensuring you get your business message out there and attract the right customers to your business. Modern digital marketing is complex and strategic and requires expert input.
- Treat customers with respect – no matter what your business offers. The overriding mantra must be to treat your customers well; it’s one of the keys to attracting and retaining customers.
- Business development – create a forward-thinking strategy with growth plans that cover the next five years or longer. This will help your business react to market changes and keep your turnover healthy.
The Best Way to Track Business Turnover
We know that being able to access your business turnover is key to running a successful company.
Accurate turnover tracking is a vital tool to obtain total business income. These are some of the most effective ways to track your turnover:
CRM Systems
Knowing exactly how much of a product or service has been purchased is key for turnover. CRM (customer relationship management) systems are a great way of following what your customers are actually buying when they shop with you. This will tell you how many people have bought from you and are waiting to buy (e.g. have an item in an online basket). CRM systems can help you project future sales and potential gross revenue. They illustrate at a glance which products are the most profitable, so you can promote these and remove items with poor sales figures.
Invoice Software
Accounting software systems automatically create an invoice every time a purchase is made. It details the sale and the expenses involved in making that sale, so you can keep a running track of your turnover.
Bespoke invoicing software also instantly provides figures like accounts receivable turnover which is a financial metric indicating the efficiency of a company in collecting payments from customers. Efficient payment collection is a vital element of healthy turnover and profit.
This automated process means you don’t need to calculate turnover at the end of a financial year. Instead, you’ll know your ‘work in progress’ turnover for the current financial year at a glance.
Manual Calculations
Most businesses are fully automated. Manual calculations using data on spreadsheets to calculate turnover is slower, labour intensive, and more likely to fall victim to human error.
How Often Should Turnover Be Tracked?
Identifying the correct specific period depends on the size of your business. For many smaller enterprises, tracking turnover on a monthly basis is an acceptable period. It will help you identify issues regularly enough to spot sales trends both positive and negative and actual problems to ensure you correct your course. Even with automated systems, checking those numbers daily is unnecessarily excessive for a smaller business.
Larger businesses with a higher turnover will almost certainly benefit from weekly turnover tracking, and possibly even daily when your business is dealing with significant expenses and incomes every day.
Which Taxes Does Turnover Impact?
Taxes and turnover are linked, so understanding them is key to business success. Turnover affects VAT, corporation tax, and income tax.
- A business must register for VAT if taxable turnover for the last 12 months is over £90,000. VAT registration is available to businesses with a lower turnover on a voluntary basis.
- Limited companies, clubs, cooperatives, foreign companies with a UK branch, and unincorporated associations such as community groups are all subject to corporation tax. The rate of corporation tax payable is directly linked to the amount your business is turning over.
- Every sole trader and self-employed individual will be responsible for paying income tax via a self- assessment tax return annually. Business partnerships are also expected to file a self-assessment return detailing their turnover before tax.
VAT
VAT (Value Added Tax) is paid by businesses in the UK on most goods and services sold – the standard rate for most companies is 20%. However, some goods and services have reduced rates. Any business turning over more than £90,000 in a 12-month period must be VAT registered.
When goods and services are subject to VAT, it is standard practice for most businesses to charge VAT on all their sales, essentially passing on the cost to the consumer. However, there may be times when you purchase goods for your business that are also VAT taxable.
- VAT charged on sales is known as output tax
- VAT paid by the business is known as input tax
VAT return submissions to HMRC are due at the end of each quarter and detail your input and output tax.
Corporation Tax
All limited companies are legally required to pay corporation tax. Corporation tax is calculated from the first day of the financial year and ends on the last day of the financial year.
A corporation tax return will need to be submitted to HMRC within a year of the end of your accounting period. The return requires information such as turnover, profit, and corporation tax liability.
Corporation tax is due within nine months and one day of the end of the accounting period the tax relates to.
Income Tax
Sole traders and self-employed individuals must file an annual self-assessment tax return showing turnover before tax so HMRC can calculate how much income tax they owe and work out their national insurance contributions.
The deadline for self-assessment submissions is always the 31st January following the end of the tax year. For the tax year (2025-2026) the deadline is 31st of January 2027.
Knowing your turnover is key alongside having accurate data on your expenses. Allowable expenses can be deducted from your taxable profits, reducing the amount of tax you’ll pay.
Allowable business expenses include:
- office costs
- travel expenses
- staff salaries and wages
- bank interest on loans in some cases
- business insurance premiums (employer’s liability insurance, public liability insurance)
- marketing and advertising expenses
- accounting and legal fees
Is Turnover Before Or After Tax: Final Thoughts
Tracking turnover before or after tax provides a valuable insight into the health of your business. Automated accounting software packages make comparing turnover over previous periods quick and easy, especially for small business owners who may have less time and resources available.
Turnover before tax (called your business’ top line) helps HMRC calculate tax and gives investors a good idea about the amount of money your business has coming in on a regular basis. Turnover after tax (your business’ bottom line) shows your business profitability after taxes and expenses are factored in, giving a true reflection of business health.
Turnover isn’t the only way to track business success or a company’s profitability, but it’s certainly one key tool that helps inform decision-makers about a company’s financial health. Understanding turnover and how that figure can be used to communicate your business’ success is vital as a business owner.
Managing your expenses and keeping customers at the heart of what you do encourages healthy turnover, putting any business in the strongest possible position for stability, security, and growth.
