Key takeaways
- Gross means the total before deductions; net means the amount left after deductions such as tax, National Insurance, costs or VAT.
- Gross pay is your salary before Income Tax, National Insurance, pension and student loan; net pay is the take-home amount paid into your bank.
- On a £35,000 salary in 2026/27, Income Tax is about £4,486 and employee National Insurance about £1,794, leaving net pay of roughly £28,720 before pension or student loan.
- Gross profit is sales minus the direct cost of sales; net profit is what remains after all business expenses, and for a company, after Corporation Tax.
- A price net of VAT excludes VAT; the gross price includes it. At the 20% standard rate the VAT inside a gross price is one-sixth of that price.
- Prices shown to consumers must include VAT under the Price Marking Order 2004; business-to-business prices are often quoted net of VAT.
Gross is the full amount before anything is taken off. Net is what is left after deductions, such as tax and National Insurance from pay, expenses from profit, or VAT from a price. The words mean the same thing in every context; what changes is which deductions apply.
What is the difference between gross and net?
Gross is the starting figure and net is the figure after deductions. The table shows how this works in the three places you meet the terms most.
| Context | Gross | Net |
|---|---|---|
| Pay | Salary before deductions | Take-home pay |
| Profit | Sales minus cost of sales | Profit after all costs |
| Prices | Price including VAT | Price excluding VAT |
A useful rule: if you are unsure, ask “before or after what?” The answer tells you which deductions sit between the two numbers.
What is gross pay and net pay?
Gross pay is what your employer agrees to pay you before any deductions. Net pay is the amount that reaches your bank account. GOV.UK says your payslip must show “your earnings before and after any deductions”, plus deductions that change each pay day, such as tax and National Insurance.
The usual deductions between gross and net pay are:
- Income Tax through PAYE
- employee Class 1 National Insurance
- workplace pension contributions (unless paid through salary sacrifice)
- student loan or postgraduate loan repayments
- other agreed items, such as a cycle to work scheme
Worked example: £35,000 salary in 2026/27
For the 2026/27 tax year (6 April 2026 to 5 April 2027), HMRC’s Income Tax rates give a £12,570 Personal Allowance and a 20% basic rate on income from £12,571 to £50,270 outside Scotland. Employees in category A pay 8% National Insurance on earnings between £1,048.01 and £4,189 a month.
| Item | Annual amount |
|---|---|
| Gross salary | £35,000 |
| Income Tax (20% of £22,430) | £4,486 |
| National Insurance (about 8% of £22,430) | £1,794 |
| Net pay before pension or student loan | about £28,720 |
That is roughly £2,393 a month. Payroll works out National Insurance pay period by pay period, so your payslip may differ by a few pence. Scottish taxpayers pay different Income Tax rates. Use the salary take-home calculator to run your own figures, including pension and student loan.
What is gross profit and net profit?
Gross profit is sales minus the direct costs of making or buying what you sold. Net profit is what remains after every other business cost as well.
- Turnover: total sales, for example £200,000.
- Less cost of sales: stock, materials and direct labour, say £120,000.
- Gross profit: £80,000, a gross margin of 40%.
- Less overheads: rent, salaries, software, insurance, say £50,000.
- Net profit before tax: £30,000, a net margin of 15%.
For a limited company, Corporation Tax is then deducted to reach net profit after tax. A sole trader’s net profit is the figure Income Tax and Class 4 National Insurance are charged on. Our guide to reading a profit and loss statement shows where each line appears, and the profit margin calculator works out both margins.
What do gross and net mean for VAT prices?
A net price excludes VAT and a gross price includes it. The UK VAT rates are 20% standard, 5% reduced and 0% zero rate.
To go from net to gross, multiply by 1.2 at the standard rate. To find the VAT inside a gross price, do not take 20% of it. HMRC’s VAT Notice 700 (section 7.3, updated 25 June 2026) explains that the VAT fraction is the rate divided by 100 plus the rate. At 20% that is 20/120, or one-sixth.
| Price | Net (ex VAT) | VAT at 20% | Gross (inc VAT) |
|---|---|---|---|
| Example | £100.00 | £20.00 | £120.00 |
| HMRC example | £2.00 | £0.40 | £2.40 |
The VAT calculator adds or removes VAT for you.
Which price should a business quote?
The answer depends on who you sell to.
- If you sell to consumers, show the gross price. The Price Marking Order 2004 guidance defines the selling price as the final price “including VAT and all other taxes”.
- If you sell to other businesses, the order does not apply. Trade prices are often quoted net, with “plus VAT” stated clearly.
- If you are not VAT registered, you do not charge VAT, so your net and gross prices are the same.
What to do now
- Check that quotes and invoices say whether figures are “ex VAT” or “inc VAT”.
- Compare your payslip’s gross and net lines with the take-home calculator.
- Track gross and net margin separately each month; a falling gross margin points to pricing or supplier costs, a falling net margin to overheads.
Frequently asked questions
Is net or gross the bigger number?
Gross is normally the bigger number because it comes before deductions. Net can only equal gross when nothing is deducted, such as a price from a business that is not VAT registered.
Is a salary quoted gross or net in the UK?
UK salaries in job adverts and contracts are almost always quoted gross, as an annual figure before tax and National Insurance.
How do I work out net from a gross price including VAT?
Divide the gross price by 1.2 at the 20% standard rate. For example, £120 divided by 1.2 is a net price of £100.
What is the difference between net profit and net income?
Net profit is a business figure after all costs. Net income usually means an individual’s income after tax and deductions, the same idea as take-home pay.
Does gross pay include employer pension contributions?
No. Gross pay is your own pay before deductions. Employer pension contributions and employer National Insurance are extra costs paid by the employer on top.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.