Turnover

What it means

Turnover is the total value of sales for a period. In the books it corresponds to revenue in the profit and loss statement - income from selling goods, products and services, always excluding VAT.

For VAT purposes turnover has its own definition that need not match accounting revenue: what counts is the value of supplies with a domestic place of supply over the period set by the VAT Act.

In bookkeeping the word turnover has a second meaning too: the sum of movements on an account over a period, as the trial balance shows it. That figure includes payments, corrections and internal transfers and has nothing to do with sales; mix the two up and turnover comes out several times higher than what the business actually sold.

How it works in practice

Turnover feeds several decisions: VAT registration, the size criteria for an audit and for classifying accounting entities, sometimes bank covenants. So it is tracked continuously, not once a year.

On its own it says nothing about the health of the business. Growing turnover on a falling margin means more work for the same or less profit, so it is always read next to margin and return ratios.

After the year ends we check whether turnover for the preceding period lets the VAT payer move to a quarterly tax period. The change has to be notified to the tax administrator within the period the Act sets; miss it and the payer stays on monthly returns and control statements for another year.

What to watch out for

The VAT registration threshold is monitored continuously against the law as in force: the obligation arises automatically, and registering late means tax on supplies already made. Both the thresholds and the monitoring period have changed in recent years.

The registration threshold is assessed per person, not per trade licence or outlet. A sole trader with two different activities adds up the turnover of both, and one who watches only one of them finds out about crossing the threshold late and pays the tax on supplies made after the obligation arose out of their own pocket.