What is Gross Profit? UK Definition 2026/27
Quick Answer
Revenue minus direct costs of goods sold, before overhead expenses.
Definition of Gross Profit
Gross profit is the profit a business makes after deducting the direct costs of producing or purchasing the goods or services it sells (cost of sales). It does not include overheads like rent, utilities, or administrative costs. Gross profit margin (gross profit / revenue) indicates pricing power and production efficiency.
Gross Profit — Key Facts for 2026/27
| Formula | Revenue - Cost of Sales |
| Gross margin | Gross Profit / Revenue |
| Excludes | Overheads, admin costs |
| Industry average | Varies widely (20-80%) |
How Gross Profit Works — Example
- 1Revenue: £500,000
- 2Cost of goods sold: £300,000
- 3Gross profit: £200,000
- 4Gross margin: 40%
- 5Overheads: £150,000
- 6Net profit: £50,000
How Gross Profit Affects Your Tax
Gross profit margin reveals how efficiently a business converts sales into profit before overheads. Improving gross margin (better pricing or lower costs) directly increases profitability.
Official HMRC Guidance on Gross Profit
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
GOV.UK: Running a businessFrequently Asked Questions about Gross Profit
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.