What is turnover?

Published Wednesday 17 June 2026

Table of contents

• What is turnover?
• Turnover vs profit
• Turnover vs revenue
• How to calculate turnover
• Does turnover include VAT?
• Why is turnover important?
• Reporting turnover
• What is annual turnover?
• What turnover is not
• Other types of turnover in business
• Manage your turnover with Xero
• FAQs on turnover

Key takeaways

• Turnover is the total income your business earns from selling goods or services over a set period, before any costs are deducted.
• Knowing your turnover helps you track financial health, apply for loans, and determine whether you need to register for VAT with HMRC.
• Turnover and profit are different: turnover is the total income coming in, while profit is what remains after you subtract your costs.
• Accurate turnover tracking is essential for tax returns, Making Tax Digital (MTD) compliance, and year-on-year business comparisons.

What is turnover?

Turnover is the total income your business generates from selling goods or services during a specific period. It's also referred to as gross revenue or income.

In the UK and across Europe, "turnover" is the standard term for this figure. In North America, the same concept is typically called "revenue." Regardless of the label, it represents the total value of sales before any expenses, taxes, or deductions are taken into account.

Turnover vs profit

While turnover and profit are closely related, they measure different things. Turnover is your total sales income, whereas profit is what's left after you deduct your costs.

There are 2 main types of profit to understand:

• Gross profit: your turnover minus the direct cost of goods or services sold
• Net profit: your gross profit minus all other operating expenses, such as rent, salaries, utilities, and marketing

Say your business sells handmade candles and brings in £120,000 in turnover over the year. The cost of materials and production is £45,000, and your other operating expenses total £50,000.

• Turnover: £120,000
• Gross profit: £120,000 - £45,000 = £75,000
• Net profit: £75,000 - £50,000 = £25,000

So, even with £120,000 in turnover, the actual profit kept by the business is £25,000. Understanding this difference helps you set realistic goals and price your products correctly.

Turnover vs revenue

In the UK, turnover and revenue are generally used interchangeably. Both refer to the total income your business earns from its core trading activities.

You might also come across the terms gross turnover and net turnover. Gross turnover is the total value of all sales before any deductions. Net turnover is the figure after trade discounts, returns, and allowances have been subtracted. For most day-to-day purposes, "turnover" on its own refers to net turnover.

How to calculate turnover

Calculating your turnover is straightforward once you know what to include. Add up all your sales income over a given period, then subtract any trade discounts and VAT collected.

The basic formula looks like this:

• Turnover = total sales income - trade discounts - VAT

For example, say your cafe earns £8,500 in sales during March. You gave £300 in trade discounts and collected £1,400 in VAT on behalf of HMRC. Your turnover for March would be:

• £8,500 - £300 - £1,400 = £6,800

Record sales at the point of sale, not when payment is received. If a customer buys something on credit in March but pays in April, that sale still counts towards your March turnover.

Does turnover include VAT?

No, turnover doesn't include VAT. VAT is collected on behalf of HMRC and isn't income that belongs to your business.

When calculating your turnover, always exclude VAT from the total. The current VAT registration threshold in the UK is £90,000. If your taxable turnover exceeds this amount over a rolling 12-month period, you're required to register for VAT.

Why is turnover important?

Your turnover gives you a clear picture of how much money is flowing into your business. It's one of the most fundamental indicators of financial health.

Turnover matters for several reasons:

• VAT registration: once your taxable turnover crosses the £90,000 threshold, you must register for VAT with HMRC
• Financial health: tracking turnover helps you spot trends, identify seasonal patterns, and measure growth over time
• Loan applications: lenders and investors typically ask for your turnover figures to assess the viability of your business
• Business insurance: many insurance providers use your turnover to determine premiums and coverage levels
• Year-on-year comparison: comparing turnover across periods helps you understand whether your business is growing, plateauing, or declining

Turnover is also relevant for Making Tax Digital (MTD). If you're VAT-registered, you're required to keep digital records and submit VAT returns through MTD-compatible software.

Reporting turnover

Turnover is recorded on your income statement (also called a profit and loss statement) under sales revenue. It's the top line of the report, before any costs or expenses are deducted.

Your bank balance won't always match your reported turnover. If you sell on credit, there'll be a delay between recording the sale and receiving the payment. Xero Small Business Insights data shows UK small businesses wait an average of 29 days to be paid, with payments arriving around 8 days late. So your bank balance and your reported turnover may not align for weeks.

Using accounting software that tracks invoices and payments in real time can help you stay on top of what's been recorded versus what's actually landed in your account.

What is annual turnover?

Annual turnover is your total sales revenue over a 12-month period. It's the figure you'll use on tax returns, financial statements, and when determining whether you need to register for VAT.

Your annual turnover is also a useful benchmark for measuring business growth. According to Xero Small Business Insights, UK small businesses saw annual sales growth of +4.7% year-on-year in 2025.

Whether your financial year runs from April to March or January to December, keeping accurate records throughout the year makes it much easier to calculate your annual turnover when the time comes.

What turnover is not

Turnover only covers income from your core business activities, specifically selling goods or services. Not every pound that enters your business counts as turnover.

The following are not included in turnover:

• Interest earned on savings or bank accounts
• Income from subletting property or equipment
• Proceeds from selling business assets, such as vehicles or machinery
• Money received from investors or lenders

These items may appear elsewhere in your financial statements, but they shouldn't be mixed in with your turnover figure.

Other types of turnover in business

The word "turnover" doesn't always refer to sales income. In a business context, it can also describe how quickly certain assets or resources are cycled through.

• Employee or staff turnover: the rate at which employees leave and are replaced over a given period. High staff turnover can signal issues with workplace culture, compensation, or management.
• Inventory turnover: how often your stock is sold and replenished during a period. A high inventory turnover usually means strong sales, while a low figure could suggest overstocking.
• Accounts receivable turnover: how quickly your business collects payments from customers. A higher ratio indicates you're collecting debts efficiently.
• Asset turnover: how effectively your business uses its assets to generate revenue. It's calculated by dividing turnover by total assets.

Each of these metrics provides a different lens on how efficiently your business operates.

Manage your turnover with Xero

Tracking your turnover accurately doesn't have to be complicated. With cloud accounting software, you can see your sales figures in real time, automate invoicing, and generate reports that show exactly where your business stands.

Xero makes it simple to monitor your turnover alongside your expenses, profit margins, and cash flow, all from one dashboard. Whether you're checking your VAT threshold, preparing for tax season, or comparing year-on-year performance, having reliable data at your fingertips keeps you in control. Get one month free.

FAQs on turnover

These are the questions small business owners most commonly ask about turnover.

Is turnover the same as profit?

No, turnover is your total sales income before any costs are deducted. Profit is what remains after you subtract expenses from your turnover.

Does turnover include VAT?

No, VAT isn't part of your turnover. It's collected on behalf of HMRC and should always be excluded from your turnover figure.

What does HMRC mean by turnover?

HMRC defines turnover as the total income your business receives from trading activities. This includes sales of goods and services but excludes things like investment income or asset sales.

Is turnover before or after tax?

Turnover is always a before-tax figure. It represents your total sales income before corporation tax, income tax, or any other taxes are applied.

How do I calculate my turnover?

Add up all your sales income for the period and subtract any trade discounts and VAT. The resulting figure is your turnover.