Business profit is what remains from revenue after all costs have been deducted. There are three levels of profit on a Profit & Loss statement, each telling a different story about business health.
The P&L structure
Revenue - COGS = Gross profit Gross profit - Operating expenses = Operating profit (EBIT) EBIT ± Finance items - Tax = Net profit
UK Corporation Tax rates (2025)
| Taxable profits | Rate |
|---|---|
| Up to £50,000 | 19% (small profits rate) |
| £50,001 – £250,000 | Marginal rate (19% to 25%) |
| Over £250,000 | 25% (main rate) |
Worked example: small company
| Item | Amount |
|---|---|
| Revenue | £500,000 |
| Cost of goods sold | − £250,000 |
| Gross profit | £250,000 (50% margin) |
| Operating expenses | − £150,000 |
| Operating profit | £100,000 (20% margin) |
| Interest on loans | − £5,000 |
| Pre-tax profit | £95,000 |
| Corporation Tax (19%/25%) | − £21,250 |
| Net profit | £73,750 (14.75% net margin) |
Distributing profit: dividends vs salary
For UK company directors, the tax-efficient strategy is typically:
- Salary up to the NI primary threshold (~£12,570) - no NI, minimal tax
- Dividends for remaining profit - lower tax rates than salary income
| Dividend income | Tax rate (2024/25) |
|---|---|
| Up to £500 (allowance) | 0% |
| Basic rate band | 8.75% |
| Higher rate band | 33.75% |
| Additional rate | 39.35% |