Figuring out your turnover when you are self-employed can be confusing. You want to make sure you’re providing as accurate information as possible, but sometimes the definitions and processes you find online can be confusing or contradict each other.
Fear not! We’re here to help you figure out your turnover so you have a clear indicator of how you and your business are performing.
What is turnover?
According to HM Revenue & Customs, turnover is the total amount of takings, fees, sales and money received by you or your business within a set period of time.
This set period of time is usually a standard financial year. Despite being self-employed, most businesses and self-employed workers use the same tax calendar as HMRC, which runs from April to April.
This helps keep financial affairs streamlined and lets self-employed workers keep track of their finances.
While your turnover includes the amount you’ve earned or received from the provision of goods and services, it does not include discounts and VAT.
When you’re working out your total turnover amount, make sure you subtract discounts and VAT from the final figure. This will then give you the figure needed for tax returns, your personal records, and other documentation. Turnover is also sometimes called gross income or revenue.
Determining your turnover is a good way to see how you or your business is performing. But it’s not as straightforward as you might think.
If you’re the sole trader of more than one business or are a member of a partnership, your turnover amount could be different than anticipated. When reporting your turnover on your tax return, your need to include a figure that includes the total turnover of all of your businesses.
This includes any new businesses that may have been created during the financial year.
Your turnover also includes things that you might not expect. This can include the amount added on for shipping an item or the expenses you invoice customers for.
It’s important to provide an accurate turnover figure as this determines whether or not you need to register for VAT.
If you fail to register for VAT when you’re legally required to do so, you could find yourself in legal trouble. Turnover also needs to be calculated when you provide services or goods to a client, not when you send out an invoice or receive payment.
While this may seem confusing when you’re first starting out as a self-employed entrepreneur, you’ll be sure to get the hang of it in no time. Just make sure you are providing as accurate a figure as possible and keep thorough records to ensure you haven’t missed anything.
Are turnover and profit the same thing?
While turnover and profit are related, they aren’t the same thing.
Turnover is the total income you or your business generates over a specific period of time, such as a financial year. Profit, on the other hand, is how you measure earnings once all costs have been deducted.
To make matters even more confusing, you also need to understand the difference between gross profit and net profit.
Gross profit is the amount you’re left with after you’ve subtracted goods and services, otherwise known as a sales margin.
Net profit is the amount you’re left with after you’ve subtracted all expenses (including tax).
Figuring out your gross profit, net profit and turnover are all important for you and your business. In fact, most companies usually list both their turnover and profit on income statements.
In most cases, turnover is the first line item given that it’s the largest figure. Profit is usually found on the bottom line of the income statement and shows the total income you or your company earned after accounting for all of your business expenses.
Put simply, turnover and profit aren’t the same things. Make sure you figure out both of these figures for your own records and when submitting tax returns to HMRC.
What is turnover for self employed entrepreneurs?
Submitting financial figures when you’re self-employed can be daunting.
Especially if you’ve previously worked in a large company and haven’t had to concern yourself with financial affairs. But don’t panic! Figuring out your turnover is actually a really straightforward process.
Once you’ve got the hang of it, you’ll find the process of filling in financial documents a breeze.
How can WIS Accountancy help you?
If you want to make sure you avoid submitting wrong information, it pays to work with an expert accountant.
WIS Accountancy is here to help! WIS has a family of businesses that can assist you with mortgages, business insurance and more. Call us on 0203 011 1898 or fill out the contact form to find out more.