Page 101 - Spring Into Markets

What is gross profit?
This is the difference between how much money a trader takes (retail sales) and the cost of goods.
Example
If I sell one bar of chocolate for £1 and I bought that bar of chocolate from a supplier for 40p, then my gross profit is 60p (£1 – 40p = 60p).
Note:
If your sales for 12 months are more than £70,000*, you will be required to become VAT registered. The type of goods you sell will also determine whether or not you need to pay VAT. You need to discuss this with your accountant. VAT will have an effect on how your gross profit is calculated as VAT will need to be deducted from your retail sales.
* this was the VAT threshold at publication. For current rates
Example (with 17.5% VAT)
If I sell one bar of chocolate for £1 and
I bought that bar of chocolate from a supplier for 40p, then my gross profit
is 45p.
£1 (retail sales) – 15p (VAT) – 40p
(cost of goods) = 45p gross profit
VAT is currently 17.5% and is calculated by taking your retail sales, e.g. £1 (in this example) and multiplying it by 7 and dividing by 47.
£1 x 7 ÷ 47 = £0.15
Guide 14 Simple Profit and Loss 101