The aim of this blog post is to help in answering the question of whether turnover is calculated before or after tax deduction through self-assessment. To explain this in detail, we will discuss turnover, its placement and calculation in one’s income statement; as well as the self-assessment process and how to file your tax returns.
Is Turnover Calculated Before Or After Tax Deduction Through Self Assessment?
Turnover is calculated before taxes are deducted from your income through self-assessment. When you refer to turnover, it simply accounts for earnings from sales of products or services during a given time period (usually one year).
It is also referred to as sales revenue or income. However, this is merely a reflection of the relationship between your sales price and sales in figures and does not include expenses, taxes or dividends.
Turnover can be calculated using the simple formula:
sales in units (in figures) x sales price per unit (in currency value)
This means that if you run a business that sells plastic chairs, for instance, your turnover for the year can be calculated as follows:
sales in units x sales price per unit = turnover
50,000 chairs x £35 per chair = £1,750,000
While this is a basic calculation, financial management in the real world may not be as simple. For instance, sole traders who sell products at different prices will be required to add sales revenue from different sources to calculate their total turnover.
If you are a service provider you can simply add your income from fees charged to different clients for services provided to arrive at your total turnover.
While this calculation depicts your earnings from sales or services, it does not indicate (a) original costs or cost of sales and (b) your operating expenses and taxes.
Once you deduct your cost of sales from your turnover, you will reach your gross profit. Taxes through self-assessment as well as operating expenses or overheads will then be deducted from your gross profit which will result in giving you your net profit during the year.
In simple calculative terms, this can be expressed as under:
sales in units x sales price per unit = turnover or
income 1 + income 2 + income 3 = turnover
turnover – the cost of sales = gross profit
gross profit – taxes and operating expenses = net profit
These calculations are applicable in the case of sole trading businesses. If there are multiple owners of a business, taxes for Limited companies and limited liability partnerships will be filed under Company Tax Returns.
If you are one of the multiple owners of a business, you will receive a dividend at the end of the fiscal year. This dividend and any other forms of income(s) are taxable under self-assessment.
Who Needs To File A Self-Assessment Tax Return?
Self-assessment tax returns are filed by self-employed individuals who do not pay their taxes under the PAYE system like salaried employees.
The HMRC further classified eligible individuals for self-assessment as follows:
- a sole trader who has an income of more than £1,000
- a partner in a business partnership
Self-assessed taxes are paid by self-employed individuals who need to file a tax return every year, while salaried individuals will have their taxes deducted by their employers through the PAYE system.
In addition to this, if you have income from any of the following sources, you will need to file your tax returns through self-assessment:
- rental income from a property
- tips and commission from product sales or provision of services
- investments, savings and dividends
- foreign income
If you are not sure about whether or not you need to file a tax return, you can check if you need to send a Self Assessment tax return on the UK Government’s website.
How Do I File A Self Assessment Tax Return?
In order to file a self-assessment tax return, you should follow the below-listed step:
- register yourself for self-assessment
- file your tax returns
- pay your taxes
Once you register yourself, you will be issued a Government Gateway ID which you can use to set up your personal tax account. Once you are issued these details you can either file your self-assessment tax online or by using a paper form.
If you choose to file your tax return online, you can simply fill in the details that apply to you when you access your personal tax account. If you are filing your tax returns on paper, you will need to fill in form SA100 And form SA103S.
Once your tax returns are filed and submitted, the HMRC will send you a confirmation message and a reference number. As soon as the HMRC calculates the amount of tax you owe, as well as the National Insurance contributions you need to pay.
Anyone who files their tax return late will be fined a penalty of £100 penalty or more. If you are filing your tax returns online, the deadline for filing them is January 31st; however, if you are filing them on paper, you should complete your filing by October 31st.
Which Details Do I Need To Provide For A Self-Assessment Tax Return?
You will need the following documents to file a self-assessment tax return:
When you file a tax return, you will need to provide information regarding the following:
- partnership income
- pension income
- rental income
- foreign income
- employment income (if you’re also employed)
- pensions contributions
- Gift Aid
- payment on account
- redundancy lump payment or unemployment benefit
- capital gains
In addition to this, you will also need to provide your Unique Tax Reference. UTR is issued to registered companies by HMRC once a limited company has been registered for Corporation Tax.
The above discussion has made it clear that turnover reflects your earnings before tax is deducted. Therefore, when you file your tax returns through self-assessment and provide the necessary details, the applicable amount of tax will be calculated by HMRC and informed to you for payment.