When someone asks how much profit your business made last year, you could give two honest answers.
One of them sounds a lot better.
The bigger one is gross profit, the money your sales left after paying for what went directly into them, like stock, materials or a subcontractor on a client job. The smaller one is net profit, what’s left once rent, salaries, software, interest and Corporation Tax come off too.
Each one stops at a different point, and comparing gross vs net profit shows you where the money went in between.
Both profit figures start with your revenue, and revenue has a gross and a net version too.
Gross revenue is everything you charged customers in a period. Take away refunds, returns and discounts, and you have net revenue.
Profit calculations always start from the net figure. For a shop with lots of returns or regular promotions, the gap between the two can be big.
If your company is VAT-registered, the VAT on your invoices stays out of revenue altogether, because you collect it for HMRC.
In UK company accounts, net revenue usually appears as turnover. Company law defines turnover as the amount you charge for goods and services, after trade discounts, VAT and other sales-based taxes are taken off.
Gross profit is net revenue minus your cost of sales (you’ll also see it called cost of goods sold, or COGS). Cost of sales covers the costs that go up and down with what you sell.
For a shop, cost of sales is mostly the stock you sold, plus costs tied to each order like packaging. A manufacturer adds raw materials and the wages of the people making the product. Service businesses such as consultancies and agencies often have very little cost of sales, sometimes only the freelancers or subcontractors they bring in for client work.
Gross profit shows whether what you sell makes money on its own.
To compare one month or year with another, divide gross profit by net revenue and multiply by 100. The result is your gross profit margin.
If it drops, look at your prices, supplier costs and discounts first.
Supplier costs include the exchange rate if you pay suppliers abroad in their own currency. When the pound weakens, the same order costs more pounds, and your margin shrinks with it.
With an Ampere business account, you can exchange currency from 0.35% and see the final rate and amount before you confirm, so the cost of a supplier order in pounds is clear before you pay it. View exchange rates
Getting to net profit
Everything between gross profit and net profit is the cost of running the business, plus interest and tax.
Overheads come off first: rent, salaries (your own director’s salary included), software, insurance and marketing. Gross profit minus overheads gives you operating profit.
Most of these everyday costs are allowable expenses, so they also lower the profit your company pays Corporation Tax on. There’s a full rundown in what you can claim as a business expense in the UK.
Next, take off interest on any business loans, then Corporation Tax. For the financial year that started on 1 April 2026, Corporation Tax is 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief in between.
The figure left at the bottom of your profit and loss account (P&L, or income statement) is your net profit.
People use net profit to mean two things, the figure before tax and the figure after it, so you’ll often see “profit before tax” and “profit after tax” written out in full. When someone quotes a net profit figure, check which one they mean.
An online shop with £100,000 of net revenue in a year could look like this:
- Net revenue: £100,000
- Cost of sales (stock and packaging): £60,000
- Gross profit: £40,000, a 40% gross profit margin
- Overheads (rent, software, marketing, salaries): £25,000
- Operating profit: £15,000
- Corporation Tax at the 19% small profits rate: £2,850
- Net profit after tax: £12,150
To keep things simple, the shop has no loan and its taxable profit matches its accounts.
From every pound of sales, the shop keeps 40p after paying for stock and packaging, and about 12p once everything else comes off. Raising prices or finding cheaper stock helps both numbers. Cutting overheads like rent or software helps too, but you’ll only see it in net profit.
Gross profit is the number to watch when you set prices, pick a supplier or plan a discount. It also affects how many sales it takes to cover rent and salaries, which is your break-even point. The more each sale leaves you, the fewer sales you need.
Net profit tells you if the business as a whole makes money once every cost is counted. It’s also where your dividends come from. Your company can only pay dividends from profit it has built up this year and in earlier years. They come out of what’s left after tax, so they don’t lower your Corporation Tax bill.
Your profit and your account balance can be very different numbers.
Profit counts a sale as soon as you make it, even if the invoice is still unpaid. Stock on your shelves has already cost you money, but it only counts against profit once it sells. So a profitable month can still leave your account looking thin.
