Gross income refers to the total pay an individual receives before taxes and other deductions, and can also refer to the gross income of an organisation or business. For an individual’s salary, gross income will appear on their payslip, showing the total amount of income for a specific period. More generally it refers to all sources of income for an individual, including from property and services.
For a business, gross income can also be called gross profit or margin and includes all revenue sources minus the cost of the goods or services sold.
Key takeaways from this section:
- An individual’s gross income includes salary or wages, and other sources of income, before tax and other deductions.
- A business’s gross income includes all sales of goods or services minus the direct cost of providing those goods.
- As an individual, your gross income can be used by lenders to determine eligibility for credit.
Understanding gross income
Gross income is an important concept for both businesses and individuals, and is a metric often used to determine financial health and reliability.
Individual gross income
For an individual, gross income refers to the total amount a person earns from their job before taxes and other deductions are removed. When looking at a role, the salary advertised is the gross income for the position, but the actual amount the employee receives will depend on deductions such as their tax band, if they have student debt, and their national insurance contributions.
Gross income is also used when applying for credit, such as a mortgage, where a lender will use it along with other metrics to determine if a person is financially viable to lend to. It’s also used by landlords and agencies when applying to rent a property, showing if a person has a stable and sufficient income to cover monthly rent payments.
Example of individual gross income
If a person has an annual salary of £30,000, as well as an income of £500 a month from a leased property, their gross income would be £30,500. On their payslip from their job, their gross income would appear as the total amount before taxes and national insurance contributions, and any other deductions, are removed. This would then provide the net income figure, or what is sometimes referred to as take-home pay. The income from their rent would also need to have tax deducted through self-assessment.
Business gross income
When looking at a company’s finances, gross income is a basic measure of profitability and financial health. Also known as gross profit, it includes all income from sales and services rendered minus the direct cost of providing those goods. While it can show core profitability, gross profit doesn’t include other business costs such as offices, administration, and taxes, so it doesn’t provide a complete financial picture.
Example of business gross income
Gross income for a company would be calculated as the cost of goods sold minus the income from selling those goods. So if a paper manufacturer sold £100,000 worth of paper in a year, and it cost £40,000 for the raw materials and production process to make that paper, their gross profit would be £60,000.
Gross income FAQs
What is the difference between gross and net income?
Gross income is a company’s profits from sales before deducting the cost of producing and distributing them. Net income is profit after all other business expenses have been factored in and deducted.
How do I calculate gross income?
Gross income is calculated by subtracting the cost of goods sold from the sales revenue of those goods. This then gives you the total income from sales after the direct costs have been discounted.
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