Turnover is the total income a business earns from selling its goods and services in a period, before any costs are deducted. It is the "top line" of the profit and loss account. UK company law defines it as the amounts derived from providing goods and services, after deducting trade discounts, VAT and other taxes based on sales. Turnover is not profit. A business can have high turnover and still make a loss. Turnover tests drive several UK thresholds, including £90,000 for VAT registration, £50,000 for Making Tax Digital for Income Tax from April 2026, and £15 million for small company accounts.
The legal definition
Section 474 of the Companies Act 2006 defines turnover as "the amounts derived from the provision of goods and services", after deduction of:
- Trade discounts;
- Value added tax;
- Any other taxes based on the amounts so derived.
Two practical consequences follow. First, a VAT-registered business reports turnover net of VAT. The VAT it charges belongs to HMRC, not to the business. Second, turnover covers income from the business's ordinary activities: selling goods, providing services, and fees and commissions. One-off gains, such as selling a van or a property, interest on deposits and grants are generally reported separately, not as turnover.
How to calculate turnover
For most small businesses the calculation is simple: turnover = total sales invoiced in the period − trade discounts − VAT and other sales taxes. Returns and credit notes reduce it too. As an illustration, a VAT-registered wholesaler lists goods at £102,000, gives £2,000 of trade discounts, and charges VAT at the 20% standard rate on the remaining £100,000. Its customers pay £120,000, but its turnover is £100,000.
Timing matters. Under accruals accounting, which companies use, turnover is recognised when the goods are delivered or the service is performed, not when the customer pays. Larger and more complex businesses follow detailed revenue recognition rules, in FRS 102 or, under IFRS, IFRS 15 (see our IFRS 15 guide). Sole traders using the cash basis count income when it is received.
Turnover vs revenue, income and profit
| Term | What it means |
|---|---|
| Turnover | Sales of goods and services from ordinary activities, net of discounts and VAT |
| Revenue | Broadly the same as turnover in UK usage. IFRS uses "revenue" as the standard term |
| Income | A wider term that can include interest, rent, grants and other receipts |
| Gross profit | Turnover minus cost of sales |
| Net profit | Gross profit minus overheads, finance costs and tax |
Turnover measures the scale of activity, and profit measures how much of it the business keeps. A contractor with £400,000 of turnover passing most of it to subcontractors may be smaller, in profit terms, than a consultant with £150,000 of turnover and few costs.
Where turnover matters for tax and compliance
- VAT registration. Under the registration rules, a business must register if its VAT-taxable turnover for the last 12 months goes over £90,000, or if it expects to exceed £90,000 in the next 30 days alone. The 12-month test is rolling, not by tax year. Registration is due within 30 days of the end of the month in which the threshold was passed. "Taxable turnover" here means everything sold that is not exempt or outside the scope of VAT, including zero-rated sales;
- Making Tax Digital for Income Tax. From 6 April 2026, sole traders and landlords whose "qualifying income" was over £50,000 in 2024/25 must keep digital records and send quarterly updates. HMRC defines qualifying income as total income from self-employment and property "before expenses (also known as turnover)". The threshold falls to £30,000 from April 2027 and £20,000 from April 2028;
- Trading allowance. Individuals with gross trading income of £1,000 or less in a tax year do not normally need to tell HMRC about it, unless an exception applies;
- Company size. A company is small if it meets two of three conditions: turnover of £15 million or less, a balance sheet of £7.5 million or less, and 50 or fewer employees. A micro-entity meets two of: turnover of £1 million or less, a balance sheet of £500,000 or less, and 10 or fewer employees. Size decides the accounts format and whether an audit is needed;
- Large-company reporting. Some disclosure duties, such as climate-related financial disclosures for companies with more than 500 employees and turnover over £500 million, also hinge on turnover.
Because each test defines turnover slightly differently, use the right figure for each. VAT uses taxable supplies. MTD uses gross self-employment and property income. Company size uses accounting turnover.
Other meanings of "turnover"
In HR, staff turnover is the rate at which employees leave and are replaced, usually given as a percentage of average headcount over a year. Stock turnover (inventory turnover) measures how many times stock is sold and replaced in a period, typically cost of sales divided by average stock. Neither is related to the accounting definition. The context, a payroll report or a stock-take, usually makes the meaning clear.
Keeping turnover figures reliable
Turnover errors cause real problems: missed VAT registrations, wrong MTD status, misstated accounts, or a company that has unknowingly crossed an audit threshold. Reconcile sales records to bank receipts and VAT returns every month. Watch the rolling 12-month VAT total, not just the annual figure. Make sure discounts, refunds and VAT are stripped out consistently. Our VAT compliance checklist covers the related VAT controls.
Acumon's bookkeeping and accounts team keeps sales records reconciled and month-end figures dependable. Our VAT registration service handles the moment turnover crosses the threshold.