What is turnover? This is always one of those questions people get asked on Dragons Den where they really ought to know the answer, but often don’t. I’ve found there is quite a bit of confusion around what turnover really is, and its an important one to understand.
In the UK, revenue, or sales, are often called “turnover”. According to the Companies Act, turnover is:
“The amount derived from the provisions of goods or services within the company’s ordinary activities after deduction of trade discounts, VAT and other relevant taxes”
What does that mean in plain English? Your turnover is basically:
- The total amount you bill to your customers
- LESS any discounts
- LESS any VAT
That means that your turnover includes a couple of things you might not expect, for example:
- Amounts you bill for shipping is part of your turnover
- Your total turnover is the total amount BEFORE you take off commission or PayPal fees
- If you bill your customer for expenses, that is also part of your turnover
Including all of this is important. The number that determines when you have to register for VAT is your turnover, and if you are close to the VAT registration threshold (currently £82,000 over 12 months) and you are not calculating your turnover correctly then you risk not registering when you are legally required to do so.
One other thing to remember is that your turnover number should be based on when you actually provide the goods or services, not when you invoice it or when you receive the cash for it.
Finally, turnover doesn’t include income from investments, e.g. interest and dividend income, as that is not from the provision of goods or services.