How this is calculated
Net profit is what remains after deducting every cost from revenue: cost of sales to reach gross profit, overheads to reach operating profit, and finally interest paid or received to reach net profit before tax. This is the figure that appears at the bottom of the profit and loss account before the corporation tax charge is deducted.
This calculator estimates corporation tax on the resulting net profit using the 2026/27 rates: 19% on profits up to £50,000, 25% above £250,000, and marginal relief in between, which produces a sliding effective rate rather than a sharp jump at £50,000.
Net margin, net profit divided by revenue, is the headline profitability figure most commonly quoted and compared between companies and years, because it captures the combined effect of pricing, cost control and overhead management in a single percentage.
Net profit versus gross profit and operating profit
Gross profit only reflects direct costs of production; operating profit brings in overheads but excludes financing costs; net profit deducts interest as well, giving the most complete pre-tax picture. Tracking all three separately shows exactly where profit is being eroded, whether that is direct costs, overhead creep, or the cost of borrowing.
A company can have healthy gross and operating margins but a weak net margin if it carries significant debt, which is a common pattern after a leveraged acquisition or heavy asset finance commitments.
From accounting profit to taxable profit
Corporation tax is not charged on accounting net profit directly. It is charged on taxable profit, which starts from accounting profit and then adds back disallowable expenses such as client entertaining and depreciation, and deducts capital allowances on qualifying plant and machinery instead. For many companies these adjustments are modest, but for capital-intensive businesses they can be significant, so treat the tax estimate here as indicative rather than final.
What this means for your company
Treat the result as a planning figure for the 2026/27 tax year. If it changes what you were about to do, take a director's salary, a dividend, a large asset purchase or a filing decision, check it against your own accounts first. We can review the position with you and confirm the tax treatment before you commit.
Frequently asked questions
What is the difference between net profit and taxable profit?
Net profit is the accounting bottom line before tax, calculated under normal accounting rules. Taxable profit adjusts that figure for disallowable expenses, adds back depreciation and substitutes HMRC's capital allowances, so the two figures often differ.
Should dividends be deducted before calculating net profit?
No. Dividends are a distribution of profit after tax, not a cost of running the business, so they never appear above the net profit line in the profit and loss account.
What is a healthy net margin?
It varies widely by sector: many service businesses aim for 10-20%, while retail and low-margin distribution businesses often run at 2-8%. Comparing your own margin over time and against direct competitors is more useful than a single universal target.
Does net profit include one-off or exceptional items?
It should, if they occurred in the period, though many businesses also track an adjusted or underlying net profit that strips out one-off items to give a clearer view of ongoing trading performance.