If you’re new to the world of self-employed work, then you’re probably also new to the world of UK tax law. So you’ve probably come across a lot of terms and concepts for the very first time – turnover, expenses, benefits in kind, and so on.

In this post we’ll attempt to demystify some of these terms. To begin with, we’ll look at “turnover” – a very important thing for business of all sizes to understand.

What is Turnover for the Self-Employed?

Your “turnover” as a self-employed worker is the total amount you make in sales in a given period. This period can be your financial year. Most businesses and self-employed year use the same tax year that HMRC uses for pay-as-you-earn workers, which runs from April to April.

Other terms for “turnover” include “gross revenue” and “income”.

What’s The Difference Between Turnover and Profit?

Some people use the words “turnover” and “profit” interchangeably. They shouldn’t, as they’re completely different things. Turnover is yournet sales figure. Or, your total business income during a set period of time.Whereas Profit is the amount of money you have left over after you deduct expenses such as staff costs, supplies, materials, tax, and other overheads.

Things can get a little bit confusing here, as there’s more than one way to measure profit. You can work out your “gross profit”, or your “sales margin”, by working out how much you made from sales after you account for the costs of the goods and services you sell. But you can also work out your “net profit”, which is the amount you have left after you deduct all expenses, including taxes.

But the main thing to understand at this stage is that “turnover” and “profit” are two different things.

Does Turnover Include Expenses?

No, your “turnover” is your net sales figure. It’s the total amount you make from sales in a set period of time. Once you start accounting for expenses, then you’re no longer talking about turnover. Instead, you’re talking about profit – the amount you have left once you’ve deducted expenses.

How to Work Out Your Turnover

As a self-employed worker, you have a legal obligation to keep detailed financial records.

If you keep good records, then it shouldn’t take you long at all to work out your turnover. Just add the amount you made from sales in a given period – whether that’s a quarter, six months, or a financial year. And the resulting figure will be your turnover for this period.

How to Work Out Your Profit

Once you know your turnover from this period:

You can work out your gross profit by deducing the cost of your sales from your turnover. The cost of your sales could include supplies and materials, and packaging and delivery costs.

You can work out your net profit by deducting all other expenses from your gross profit. Beyond your overheads, this could include admin, training costs, and your tax liabilities.

Why Does Turnover Matter?

As we’ve seen, calculating your turnover is the first step to calculating how profitable your business is. So understanding your turnover is an essential part of understanding you business’s overall health.

Generally speaking, if your turnover’s high, then you’re probably in a pretty good place. It means that there’s a demand for your products and services, and people are willing to pay! On the other hand, if your turnover’s low, then it might indicate that you need to do more marketing, or that you need to further refine your product or service, to make it more attractive.

But your turnover alone doesn’t tell the whole story.

For example, if your turnover’s high and your gross profits are low, then it might indicate that you’re paying too much for certain services. This can prompt you to act to increase your profits. For instance, you could look for alternative suppliers, or investigate more efficient production practices.

Also, if your turnover’s high but your net profits are low, then you might take a closer look at your overheads. For instance, you could see if there are any allowable expenses you can claim for as a self-employed worker.

Further Support for Self-Employed Workers

You can read our complete guide to going self-employed. This guide contains lots of information about your responsibilities as a self-employed worker when it comes to things like tax and expenses.

One major thing you should think about as a self-employed worker is insurance. Insurance can provide essential protection against many of the problems that self-employed workers face, from unpaid invoices to tax disputes. At Tapoly, we specialise in affordable insurance for self-employed freelancers and contractors, with cover starting from just 35p a day.

If you have any questions, or you’d like to discuss your options, you can contact the Tapoly team at info@tapoly.com, call our info line on +44(0)207 846 0180, or use the chat box on our website.