What is ‘turnover’ and how do you calculate it?

Knowing how well your business is performing at any point in time is essential for several reasons.

You might be working out how much to put aside for taxes, considering a loan application, or simply checking whether the effort you’ve put in is paying off.

One of the key numbers to watch is turnover.

It tells you how much money your business has brought in, before looking at the costs.

Profit is the other important measure, but the two are not the same.

This guide explains what turnover means for self-employed people, why it matters, how it differs from profit, and where people often go wrong.

What does turnover mean?

Turnover is the total amount your business earns from selling goods or providing services. Think of it as your sales figure before any costs are deducted.

Formally, it’s the amount invoiced to customers, minus VAT and any discounts. You may also hear it referred to as gross income or revenue.

A few points to remember:

• Turnover includes extras such as shipping you recharge to customers or expenses you bill back to them.
• Payment processing fees (for example, PayPal or Stripe charges) don’t reduce turnover – they’re a cost to you.
• Turnover is recorded when the work is completed or goods are delivered, not when payment is received.
• This can be particularly challenging if you invoice late or have long payment terms.
• Bank interest, dividends or other investment returns are not counted as turnover, because they’re not trading income.

Why turnover matters for the self-employed

Turnover isn’t just a bookkeeping entry. It has real consequences for how you run your business:

• VAT registration – your taxable turnover determines when you must register. If you miscalculate, HMRC can backdate VAT and charge penalties. Read our VAT guide.
• Trading allowance – the £1,000 allowance is based on turnover, not profit. If your gross income is under £1,000 in a tax year, you don’t need to register as self-employed. Once you pass the threshold, even with small profits, you must register. More on the trading allowance.
• Cash basis accounting – you can only use this more straightforward method if your turnover is below the eligibility limit (GOV.UK: cash basis).
• Self Assessment reporting – sole traders must declare turnover (trading income) on their tax return before deducting expenses. Our Self Assessment guide.
• Funding and mortgages – banks and lenders often require both turnover and profit to assess how stable your business income is when you apply for a loan or mortgage.
• Business growth – a rise in turnover doesn’t always mean the business is healthier. If costs grow at the same rate, profit may stay flat.

Turnover vs profit

It’s easy to confuse the two.

Turnover – the total income from sales in a period, before costs.

Profit – what you keep after costs. There are two main measures:

• Gross profit – turnover minus the direct costs of goods or services.
• Net profit – gross profit minus everything else, such as rent, software, insurance, and tax.

Example:
Sales (turnover): £100,000
Cost of sales: £20,000
Gross profit: £80,000
Operating costs: £10,000
Net profit: £70,000

How to calculate turnover in practice

If you’re self-employed, turnover usually means adding up your invoices for the year, excluding VAT.

• For a service business (such as a web designer), turnover refers to the total invoiced for projects and retainers.
• For a product-based business (such as an online shop), it’s the total value of goods sold, including postage reimbursed to customers, but excluding VAT.

Bookkeeping software can give you the figure at a glance. Spreadsheets work too, but you need to be consistent with dates and VAT.

Common mistakes people make

• Confusing turnover with profit – some assume turnover is what they’ve “earned”. It’s not – costs still have to come out.
• Ignoring unpaid invoices – turnover is based on when you do the work, not when you’re paid.
• Forgetting to exclude VAT – if you’re VAT registered, the VAT you charge customers isn’t part of turnover.
• Mixing in personal income – things like bank interest or a private pension aren’t trading turnover.
• Not tracking against the VAT threshold – some only realise they’ve gone over when HMRC contacts them.

Why knowing your turnover helps you run a better business

When you understand turnover alongside profit, you can spot where the problems are:

• High turnover but low gross profit might mean you’re under-pricing or paying too much for supplies.
• High gross profit but low net profit suggests overheads (insurance, subscriptions, admin) are eating into earnings.
• Steady turnover but falling profit may point to rising costs you haven’t noticed.

Keeping an eye on both figures helps you make changes before they become bigger problems.

Other uses of the word turnover

In everyday business language, turnover can be used in different ways, not always referring to sales income:

• Employee turnover (churn) – this refers to the number of staff members who leave a company over a specified period. Larger businesses track it as a sign of staff satisfaction and retention. It isn’t usually relevant to sole traders, but the phrase can be confusing if you come across it in articles or reports.
• Inventory turnover – a measure of how quickly stock is sold compared with what is held. To calculate it, you divide sales over a period by the average value of inventory. If you run an online shop, this figure indicates how efficiently you manage your stock.
• Accounts receivable turnover – used where businesses give clients credit terms. It shows how long customers take to settle their accounts. For the self-employed, the principle is the same: the quicker you can turn invoices into cash, the healthier your cash flow. See our late payments guide.

FAQs

Does turnover affect the amount of tax I pay?
Not directly. Income Tax and National Insurance are based on your profits, not turnover. But turnover drives everything – if it rises, your taxable profit usually rises too.

Do I need to report turnover to HMRC?
Yes. In your Self Assessment return, you declare your trading income (turnover) and then deduct allowable expenses to arrive at taxable profit. See GOV.UK: Self Assessment.

What’s a good turnover for a sole trader?
It depends entirely on your trade. A part-time business might only turn over £5,000, while a busy tradesperson could see £80,000+. The important thing is how much profit you keep.

Is turnover the same as income?
In everyday language, people often use the term “income” loosely. For HMRC, your “business income” is your turnover, but your personal income is the profit you take out.

What if my turnover is under £1,000?
That falls under the trading allowance. You don’t need to register with HMRC or file a return for that activity, unless you choose to. Read our trading allowance guide.