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Is Turnover Calculated Before Or After Tax?

Is Turnover Before Or After Tax?

Turnover will give you a quick overview of business performance, because it looks at your net income – all of the revenue you’ve generated throughout the year through the sales of goods and services. This is different to net profit (which is the total sales minus any business expenses). Your business’ annual turnover simply looks at all your income throughout the year.

But to calculate turnover should it be done before or after tax? Well, you can do it either way. Turnover before tax will show you total sales revenue, whereas turnover after tax can show you a more meaningful total, especially for business investment purposes, as turnover after tax is a better indicator of profitability and financial performance.

With that said, turnover before and after tax expenses are both useful figures to have to hand for your business for providing a snapshot of success. Throughout our post today we’ll explore when both might be used to better inform your business strategy moving forwards.

The Relationship Between Turnover And Tax

Turnover determines tax. That is to say, the more money you have coming into the business, the more tax you’ll need to pay to the government. So, how does that relationship work?

TurnoverTurnover, in business, means the total amount of income a business makes over a specific period (usually over a year). It’s essentially the total value of goods and services sold: it can be either, or a combination of the two depending on your business model.

Measuring turnover usually means you aren’t concerned with operating expenses or the cost of any goods before selling – this is to keep things simple for tracking your sales growth.

TaxesTurnover will have a huge influence on how you pay tax as a business. Turnover is the main number used for tax calculations. Only by knowing how much money your business has coming in, can you accurately determine the taxes you’ll pay and how much.

Calculating turnover is important for decision making, as it allows you to set prices more accurately for tax purposes and business strategy. By knowing your business earnings in its simplest form, you can plan for taxes accordingly, ensuring your business isn’t caught out at the end of the financial year.

So, What Is Employee Turnover?

Employee turnover isn’t something you need to worry about if you’re an independent sole trader working alone, but if you’re an SME business owner, then employee turnover can be an additional measure that helps you track business success.

Here you simply look at all the employees that have come and gone over the year. Whilst it isn’t needed for tax purposes, it can be a great measure of employee satisfaction.

But since it has no bearing on taxes, we won’t cover employee turnover further today.

What Is Turnover Before Tax (TBT)?

TBT, or turnover before tax, is your total revenue before any tax or expenses are deducted. Investors are usually most interested in this figure when they want to know just how much money a business has coming in in its simplest terms, before factoring in all of the complications of various deductions. HMRC is also most interested in this figure.

What Is Turnover After Tax?

Turnover after tax usually considers total revenue minus tax deductions and trade discounts. Here the real terms profit is measured instead: how much the business actually makes when they minus their expenses. Turnover after tax can give investors a better idea of profitability and the business’ bottom line. It can also help with comparing profitability of different businesses to help investors decide where there money is best placed.

calculating turnover before or after tax

What Is The Difference Between Turnover And Profit?

Although the two are inevitably linked, turnover and profit are slightly different. You don’t really calculate profit at all when you calculate turnover before tax – this is simply a snapshot of how much money a business has coming in, without worrying about what’s going out.

Turnover after tax is more closely linked with the two types of profit, though:

Gross ProfitA business or company’s gross profit is turnover minus the cost of goods or services sold (COGS)
Net ProfitNet profit is a business’ turnover minus COGS and expenses such as taxes and wages

As you can see, you can use turnover in different ways to calculate both types of profit, but net profit is more closely linked to turnover after tax.

Is Turnover Before Or After Tax More Important?

That depends on who the information is for and what they want to do with that information. HMRC will want to know turnover before tax, for example, because they’ll be the ones that then calculate how much tax your business needs to pay. Investors, on the other hand, are likely to be far more interested in turnover after tax because it can help them make informed decisions about just how profitable your business actually is.

If we were to say the most important from a business owner’s perspective, it would probably be turnover after tax, since it gives you that snapshot into actual profitability and your business’ overall financial performance.

But don’t get it wrong: both are important figures for any business owner to know, as they’ll both inform business strategy and give you a clear understanding of what’s coming in and what’s going out in an instant.

How Can You Improve Your Turnover?

Since turnover is a marker of business success, you’ll want to know different things you can do to improve it:

  • Pick your products and services wisely – make them especially relevant to your target audience.
  • Price is everything – choose a price that is neither too expensive nor too cheap; you have to make money as a business but you don’t want to put money above customers, or they simply won’t return.
  • Make use of business marketing – branding and marketing is key to ensuring you get your business message out there and attract the right customers to your business.
  • Treat customers with respect – no matter the goods and services you offer, treating your customers right is the key to business turnover because you have to leave a lasting impression that keeps your customers coming back for more.
  • Business development – without constant strive for change, you won’t improve your turnover. The fact you’re taking the time to read a post like ours today can only be a good thing.

 

Create a strong business plan and strategy and you’ll be able to adapt to the changing business landscape to improve your turnover, no matter what comes your way.

Best Way To Track Business Turnover

Tracking your business turnover is key to running a successful business. Turnover tells you exactly how your business is doing at a glance.

Below we’ll cover the most effective ways to track your turnover:

  • CRM (customer relationship management) systems are a great way of following what your customers are actually buying when they shop with you. This will tell you how many people have bought from you, are waiting to buy (e.g. have an item in an online basket), and can even help you project future sales and work to understand which products are your most profitable, so you can push these to customers when they come to you. Knowing exactly how much of a product or service has been purchased is key for turnover.
  • Invoice software systems are also great for turnover tracking purposes. Every time a purchase is made, an invoice is automatically created, detailing the sale and the expenses involved in making that sale, so you can keep a running track of your turnover.

 

You can, of course, calculate turnover manually with spreadsheets, etc, but with automation so readily available in today’s society, why wouldn’t you take the opportunity? And it removes the chance of human error.

How Often Should Turnover Be Tracked?

For many smaller enterprises, tracking turnover on a monthly basis is perfectly fine. It will help you identify issues regularly enough to correct your course, without becoming a menial task that gets in the way of your business growth. Even with automated systems, checking those numbers daily can be a little excessive for a smaller business.

Larger businesses will almost certainly benefit from weekly turnover tracking, and possibly even daily when your business is dealing with larger expenses and incomes every day. This will keep you on top of things and ensure your business isn’t steering in the wrong direction for too long.

When should you calculate turnover

Which Taxes Should You Be Aware Of Your Turnover For?

Taxes and turnover are inevitably linked, so understanding them is key to business success.

VAT, corporation tax, and income tax are your main concerns as a business owner.

  • A business must register for VAT if taxable turnover for the last 12 months is over £90,000. You can volunteer to register if turnover is less than this, however.
  • Limited companies, clubs, cooperatives, foreign companies with a UK branch, and unincorporated associations such as community groups are all subject to corporation tax. Turnover is linked to this as the amount of tax you’ll pay is dependent on how much your business is turning over.
  • Every sole trader and self employed individual will be responsible for paying income tax via a self assessment tax return each year. Partners in business are also expected to file a self assessment. The tax you’ll pay is linked directly to your turnover before tax.

 

VAT

VAT (Value Added Tax) is paid by businesses in the UK on most goods and services sold – the standard rate for most goods and services is 20%. Some goods and services have reduced rates. Any business turning over more than £90,000 in a 12 month period must be VAT registered.

When your goods and services are subject to VAT, you’ll usually charge VAT on all your sales, essentially passing on the cost to the consumer, which is standard practice for more businesses providing goods and services. But there may be times when you purchase goods for your business that are also VAT taxable.

  • VAT charged on sales is known as output tax
  • VAT paid by the business is known as input tax

 

VAT return submissions are due at the end of each quarter to HMRC, detailing your input and output tax.

Corporation Tax

All limited companies are legally required to pay corporation tax, as are several other businesses covered above. This is calculated from the first day of the financial year, and ends on the last day of the financial year.

A corporation tax return will need to be submitted to HMRC within a year of the end of your accounting period. The return requires information such as turnover, profit, and corporation tax liability.

After being told the amount due, you must pay within 9 months and 1 day of the end of the accounting period the tax relates to.

Income Tax

Sole traders and self employed people must file an annual self assessment tax return showing turnover before tax so HMRC can calculate how much you owe in tax and work out your national insurance contributions too.

The deadline for self assessment submissions is always the 31st January following the end of the tax year. For the current tax year (2024-2025) the deadline will be 31 January 2026.

Knowing your turnover is key here, as is knowing your expenses, because the expenses can be taken from your taxable profits, reducing the amount of tax you’ll pay.

Expenses can include:

  • office costs
  • travel expenses
  • staff costs
  • marketing and advertising expenses
  • accounting and legal fees

 

Summary

Tracking turnover before or after tax gives you a great snapshot of your business performance at a glance. Turnover before tax (your business’ top line) helps HMRC calculate tax, and can give investors a good idea about the amount of money your business has coming in on a regular basis. Turnover after tax (your business’ bottom line) shows your business profitability after taxes and expenses are factored in, giving a true reflection of business health.

Turnover isn’t the only way to track business success or a company’s profitability, but it’s one key tool that can help you with that. Understanding turnover and how that figure can be used to communicate your business’ success is vital as a business owner.

Manage your expenses, keep customers at the heart of your business, and a keen eye on turnover, and you’ll put your business in the strongest position for growth.

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