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HMRC internal manual

Senior Accounting Officer Guidance

What is a qualifying company: conditions for a qualifying company: what is turnover

For the purposes of the Senior Accounting Officer (SAO) legislation the definition of turnover is taken from Section 474 of the Companies Act 2006. This states that turnover means the amount derived from the provisions of goods or services within the company’s ordinary activities after deduction of trade discounts, VAT and other relevant taxes.

In most cases this will be the amount and description appearing on the company’s profit and loss or income and expenditure account and Customer Compliance Managers (CCMs) will not normally need to make any enquiries about this.

In situations where a company might describe its activities as acting as an ‘agent’, ‘broker’ or ‘trader’ what constitutes turnover will depend heavily on the precise nature of the contract between the buyer and the seller including whether the company is acting as principal or agent in a particular transaction. How the transactions are treated under UK Generally Accepted Accounting Principles (GAAP) should also provide a good indicator of whether it is the gross or net value of the goods or services which constitutes the turnover.

GAAP may allow different equally valid methods of calculating turnover for the same type of activity. Furthermore some companies may describe their turnover as, say, income but in essence that income will normally be similar to or the same as the sums that would constitute turnover as defined in the Companies Act.

Some companies, for example those in the banking or insurance sectors, do not describe their income as turnover as not all their income is necessarily derived from the provision of goods and services. This may be because some income is derived from the investment of capital, which in HMRC’s view does not constitute turnover for SAO purposes, in accordance with the definition of turnover in the Companies Act 2006.

Corporates which are charities almost certainly receive donations and other voluntary income which does not derive from the provision of goods and services. This would not therefore constitute turnover.

There may be other companies carrying out activities which do not in whole or part constitute the provision of goods or services. This does not mean however that such companies will not have turnover and they will be expected to determine that figure in accordance with the Companies Act definition.

HMRC accepts a GAAP compliant figure in audited accounts as prima facie evidence that the Companies Act definition of turnover is met. However in certain cases HMRC may have reason to believe the turnover figure provided does not adequately reflect the Companies Act definition and will seek to establish a figure which in their opinion meets that definition.

FA09/SCH46/PARA15 (2) (3) and (6)