How to calculate turnover as a UK business?

‘Turnover’ is one of the most important metrics in business. Yet, it often causes confusion. Why? Because it can mean two completely different things.

For a Finance Manager, turnover is about money. It’s the total sales revenue your company generates. For a Human Resources Manager, turnover is about people. It’s the rate at which employees leave the organisation.

Both are critical. One measures the income coming into the business, the other measures the talent leaving it.

For growing UK businesses, understanding how to calculate turnover in both forms is important for both survival and strategic planning.

This article covers both sales and employee turnover, providing the calculation methods you need.

What is sales turnover?

Sales turnover is the total amount of money your business brings in from its operations over a set reference period. This is also often called ‘revenue’, or ‘gross income’, and actually represents your gross sales.

This is the top-line figure on your profit and loss account (P&L). In financial terms, it is equivalent to ‘financial turnover’, as a way to say, in simple terms, ‘the money coming in’ from sales.

It therefore represents the pure value of your sales before you deduct any costs. Typical costs, such as purchasing inventory, paying salaries and rent, and marketing, are then subtracted from your turnover to determine your profit (or loss).

A business can have a very high turnover and still make no profit if its expenses are too high. Tracking this figure is vital for assessing sales performance and market share.

How is sales turnover calculated?

Working out basic sales turnover is straightforward. You simply sum up all the sales from your primary business activities for a specific period (such as a month, a quarter, or a financial year).

The calculation is: Total sales = Price per unit × Number of units sold

If you are a service-based business, you would sum the income generated from all client services provided.

There are important distinctions to make here:

• What to include: All sales from your core operations. This includes all invoiced sales of goods and services, even if payment hasn’t been received into your bank account yet (this is known as accrual accounting).

• What to exclude: You must exclude VAT. The VAT you collect on behalf of HMRC is not your revenue. You should also deduct any returned goods or customer discounts. This gives you your net turnover.

Why is tracking sales turnover so important?

This figure is the key indicator of your company’s sales performance, important for the following reasons:

1. Legal and tax compliance: Your annual turnover is a key figure required in submitting your company’s financial accounts to Companies House. It also dictates whether your business must register for VAT with HMRC. You can find the current thresholds on the official UK government website.

2. Business performance: It reveals information on demand for your product or service. Is your turnover growing year-on-year? Are sales dipping in a particular month? This information, in addition to other KPIs, will then help management make strategic decisions.

3. Securing finance: If you need to apply for a business loan, bank credit, or to get a better credit rating, the bank or lender will look at your turnover as a primary measure of your business’s size and stability. A strong, consistent turnover makes your company a more attractive prospect for a loan.

What is employee turnover?

Employee turnover, or ‘staff turnover’, measures the rate at which employees leave your company. This is a critical metric for HR management and business leaders.

Some turnover is natural, and even healthy. It allows new ideas and new talent to enter the organisation. However, an elevated turnover rate is generally a serious problem. It signals underlying issues with company culture, management, pay, and/or working conditions.

The cost of employee turnover is immense. It will typically include recruitment and agency fees, advertising, management time spent on interviews, onboarding and training for new staff, and lost performance and productivity while new hires get up to speed.

How do I calculate the employee turnover rate?

Employee turnover rates are generally reported as a percentage. The most common formula used in the UK is:

Employee turnover rate (%) = (Total number of leavers in a period / Average number of employees in the same period) × 100

Here is a step-by-step example for an annual rate:

1. Find your total number of leavers: Count every employee who left the business during the year (both voluntarily and involuntarily). Let’s say 50 employees left.

2. Find your average number of employees: The average is important, as your headcount changes. The simplest way is: (Staff at start of year + Staff at end of year) / 2.

3. Start of year: 480 employees

4. End of year: 520 employees

5. Average = (480 + 520) / 2 = 500 employees

6. Find the rate:

7. (50 Leavers / 500 Average employees) × 100 = 10%

8. Your annual employee turnover rate is 10%.

You can use this same formula for any period, such as a month or a quarter, to get a more current or evolving view. A good integrated HR and payroll system will include a turnover calculator to do this automatically.

What is considered a high staff turnover rate?

What counts as ‘high’ depends entirely on your industry.

• Sectors like hospitality or retail often have elevated annual figures (30%+), which is considered normal.

• Sectors like accounting, law, or financial services typically have much lower rates.

The key is to benchmark your rate against your industry average. If your rate is significantly higher than your competitors, then you are losing both talent and money.

How does payroll data connect both types of turnover?

The finance and HR worlds are intertwined, and your payroll system is one of the most powerful tools for keeping track of their interaction.

Why is payroll the central connection?

Your payroll processing holds all the key data regarding:

• The impact of costs on sales turnover: Payroll costs (including salaries, employer’s National Insurance contributions, and pension payments) are the largest single expense you will subtract from your sales turnover in order to find your profit.

• Employee turnover: Your payroll list is the definitive record of who is working for you. It contains the start dates and leaving dates for every single employee, that is, the key data required to find this figure.

A modern, integrated payroll and HR system gives you a real-time, accurate balance of your business.

How can technology be used to accurately track all the data?

Trying to find these figures manually using spreadsheets is slow and full of innate risk. A personal mistake in a formula can lead to incorrect financial accounts, or a grave misunderstanding of your HR challenges.

Using integrated HR and payroll software gives management a clear dashboard. You can track your wage bill against your sales income in real-time. You can instantly generate a report on your staff turnover rate for the current quarter.

This automated data is essential for accurate accounting and smart decision-making. A system that unifies your HR management with payroll provides a single source of truth, saving your team tons of valuable time.

What are the UK legal and accounting requirements for turnover?

For UK businesses, tracking sales/financial turnover is a legal requirement.

When you file your annual accounts with Companies House, your turnover is a mandatory declaration. And this information is public for all limited companies.

For tax purposes, your sales turnover is critical. As mentioned, it determines whether you have to register for VAT. It is also the starting point for your Corporation Tax calculation, where you declare your gross income before deducting allowable expenses to arrive at your taxable profit.

Your accounting records must therefore be accurate. This includes all sales invoices, bank statements, and a record of your assets, like inventory. Failure to keep accurate accounts will likely lead to penalties from HMRC.

Regarding employee turnover, the requirements are different. There is no single law that requires all UK businesses to calculate and report their specific employee turnover rate to HMRC or Companies House.

However, this metric is seen as a vital part of good corporate governance. For larger quoted companies, elements of this data fall under strategic reporting requirements. Furthermore, all businesses are legally required to keep accurate employee records for PAYE, and companies with 250 or more employees must publish their gender pay gap data, which uses the same underlying payroll data.

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