What is revenue?

What revenue means

Revenue is the top line of the profit and loss account. It is what customers pay for what you sell, excluding VAT, which you collect on HMRC's behalf. In the UK the words revenue, sales and turnover are used almost interchangeably.

Under accrual accounting, revenue is recorded when you earn it, not when the money arrives. A job finished and invoiced in March is March revenue even if the client pays in May. Sole traders using the cash basis record income when it is received instead.

Example

A web developer's VAT-registered company invoices three clients in a month:

Invoice	Net	VAT	Total
Client A	£4,000	£800	£4,800
Client B	£2,500	£500	£3,000
Client C	£1,500	£300	£1,800
Total	£8,000	£1,600	£9,600

Revenue for the month is £8,000. The £1,600 VAT is a liability owed to HMRC, not income.

Why it matters for your business

Revenue drives several thresholds. VAT registration is based on taxable turnover over a rolling 12 months against the VAT threshold of £90,000. Making Tax Digital for Income Tax applies to sole traders and landlords once their qualifying income passes the threshold for the year. Company size, and so the level of accounts you file at Companies House, depends partly on turnover too.

Revenue alone says nothing about whether you are making money. A business can grow revenue every year while losing money on each sale, so look at gross profit and net profit alongside it.

Revenue vs profit

Revenue is income before costs. Profit is what is left after costs. If the developer above spent £3,000 on subcontractors and £2,000 on overheads, the month's profit before tax would be £3,000 on revenue of £8,000.

When revenue is recognised

For long jobs, revenue is recognised as the work is done, not when the final invoice goes out. A builder halfway through a £60,000 extension at the year end has earned roughly £30,000 of revenue, even if only £20,000 has been invoiced. The other £10,000 appears as accrued income. Deposits received before any work starts are the reverse: they are held as deferred income until earned.

Getting this right matters for tax, because profit is taxed in the period the revenue is earned.