Gross vs net: what is the difference?
Gross is an amount before deductions such as tax, VAT or costs are taken off, and net is the amount left after those deductions.
What gross vs net means
The words mean the same thing everywhere, but what is being deducted depends on the context:
- Pay: gross pay is salary before tax and National Insurance; net pay is what reaches your bank account.
- Prices: net is the price excluding VAT; gross is the price including VAT.
- Profit: gross profit is sales less the direct cost of sales; net profit is what is left after all expenses.
Example
Three everyday cases in 2026/27:
| Context | Gross | Deductions | Net |
|---|---|---|---|
| Salary | £35,000 | Income tax £4,486 and National Insurance £1,794.40 | £28,719.60 |
| A VAT-registered supplier's price | £600 | VAT at 20%: £100 | £500 |
| A shop's profit | Gross profit £48,000 (sales £80,000 less cost of sales £32,000) | Overheads £30,000 | Net profit £18,000 |
Notice that for prices, the net figure is usually the starting point: a £500 net price has VAT added to make £600 gross.
Gross and net margins
The same logic applies to percentages. Gross margin is gross profit as a percentage of sales; in the shop example, £48,000 on £80,000 of sales is 60%. Net margin is net profit as a percentage of sales: £18,000 on £80,000 is 22.5%. Tracking both each month shows whether a change in profit comes from pricing and direct costs or from overheads.
For pay, "gross to net" is also the name payroll teams use for the calculation from salary to take-home, including pension contributions and student loan deductions as well as tax and National Insurance.
When agreeing a deal, write "plus VAT" or "including VAT" on every quote and contract, and say whether a salary offer is gross or net.
Why it matters for your business
- Quoting a price without saying whether it includes VAT causes disputes. Prices shown to consumers must include VAT.
- Salaries in job adverts and contracts are normally gross, so employees need a take-home figure to budget.
- A strong gross profit with a weak net profit points to high overheads, while a weak gross profit points to pricing or direct costs.
When you discuss numbers with a lender, a customer or your accountant, say which one you mean. Cloudkeepers reports both gross and net margins in clients' management accounts.
Common questions
Almost always gross, meaning before income tax, National Insurance, pension contributions and student loan deductions. Use a take-home pay calculator to see the net amount, and remember that your tax code and pension arrangements affect the result.
For a VAT-registered business, turnover in the accounts is normally shown net of VAT, because the VAT belongs to HMRC. For the VAT registration threshold, you also look at taxable turnover excluding VAT. Businesses that are not VAT registered have no VAT to strip out.