Net Profit Margin Calculator UK

Q: What is net profit margin and how do you calculate it?

Net profit margin is the percentage of revenue that remains as net profit after all expenses have been deducted, including cost of goods sold, operating expenses, interest, and tax. The formula is: Net Profit Margin = (Net Profit divided by Revenue) multiplied by 100. Net Profit = Revenue minus COGS minus Operating Expenses minus Interest minus Tax. For example, a business with £500,000 revenue, £200,000 COGS, £180,000 operating expenses, £10,000 interest, and £22,000 tax has a net profit of £88,000 and a net profit margin of 17.6%.

Q: What is the difference between EBITDA margin and net profit margin?

EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) margin excludes non-cash charges (depreciation and amortisation) and the cost of capital structure (interest) and tax. It is often used to assess the underlying operational profitability of a business, especially when comparing companies with different capital structures or tax situations. Net profit margin is the bottom-line figure after all of these have been deducted. EBITDA margin is typically higher than net profit margin. Investors often use EBITDA as a proxy for operating cash flow, though this has limitations.

Q: What is a good net profit margin for a UK business?

Net profit margins vary significantly by industry. UK retail businesses typically achieve net profit margins of 2 to 5 percent, as they face high operating costs and thin gross margins. Technology and software companies commonly achieve 15 to 25 percent. Financial services firms typically report 20 to 30 percent. Professional services businesses such as law, consulting, and accountancy typically achieve 10 to 20 percent. These are broad averages; within each sector there is significant variation based on business size, business model, and competitive positioning.

Q: What is operating profit margin and how does it differ from net profit margin?

Operating profit margin (also called EBIT margin) measures profit after deducting COGS and all operating expenses, but before interest and tax. Net profit margin deducts interest and tax as well. The difference between operating margin and net margin reveals the impact of the business's financing costs and tax burden. A business with a 15% operating margin and a 10% net margin is paying significant interest (on debt) and corporation tax. If the two margins are similar, the business has little debt and a low effective tax rate.

Q: How do I improve my net profit margin?

Improving net profit margin requires action at multiple levels of the P&L. At the gross margin level: raise prices, reduce COGS through supplier negotiation, and improve product mix toward higher-margin items. At the operating level: review fixed overhead costs (rent, subscriptions, headcount), reduce variable costs through process improvements, and eliminate non-essential expenditure. At the financing level: refinance debt at lower interest rates or reduce total debt. At the tax level: ensure you are claiming all allowable deductions, using the Annual Investment Allowance, and making pension contributions to reduce taxable profit.

Q: What does the P&L waterfall show?

A profit and loss waterfall (also called a waterfall chart) shows how revenue is progressively reduced by each category of cost to arrive at net profit. Starting with total revenue, the chart shows the deduction for COGS (arriving at gross profit), then operating expenses (arriving at operating profit or EBIT), then interest (arriving at profit before tax, or EBT), then tax (arriving at net profit). This format makes it immediately clear which cost category has the largest impact on profitability and where the greatest opportunities for margin improvement lie.

Q: How is corporation tax calculated for UK businesses?

UK corporation tax is charged on a company's taxable profit. From April 2023, the main rate is 25% for companies with profits over £250,000. Companies with profits of £50,000 or less pay at the small profits rate of 19%. Between £50,000 and £250,000 there is a tapering system using marginal relief that produces an effective rate between 19% and 25%. The tax is calculated on profit before tax (revenue minus all allowable expenses including capital allowances), not on revenue. Our calculator uses 25% as a simplified rate for illustration; consult HMRC guidance or an accountant for your specific liability.

Enter your revenue, cost of goods sold, operating expenses, interest and tax to calculate gross margin, EBITDA margin, operating margin and net profit margin. Includes a live P&L waterfall and industry benchmarks.

Enter Your Figures (Annual, £)

Revenue (Total Sales)

Cost of Goods Sold (COGS)

Operating Expenses (excl. COGS)

Depreciation & Amortisation (D&A)

Interest / Finance Costs

Corporation Tax Leave blank to auto-calculate at 25% (main CT rate)

Net Profit Margin Benchmarks by Industry (UK 2025)

Industry	Net Profit Margin	EBITDA Margin	Notes
Retail	2 – 5%	4 – 8%	High COGS and operating costs
Technology / SaaS	15 – 25%	25 – 40%	Scalable model, low marginal cost
Financial Services	20 – 30%	30 – 45%	High revenue per employee
Professional Services	10 – 20%	18 – 30%	Labour-intensive, few assets
Healthcare / Private Medical	8 – 15%	15 – 25%	Regulatory and staffing costs
Manufacturing	5 – 12%	10 – 18%	Capital intensive, D&A significant
Construction	3 – 8%	6 – 12%	Project risk, subcontractor costs
Hospitality / Restaurants	3 – 9%	10 – 18%	Before lease costs (pre-IFRS 16)
E-commerce	5 – 12%	8 – 15%	Fulfilment and returns are key

Understanding the Full UK Profit and Loss Account

A UK profit and loss account (also called an income statement) flows from top-line revenue down to bottom-line net profit, with several key subtotals along the way. Understanding each level of profit gives you much greater insight than looking at net profit margin alone.

Gross Profit and Gross Margin

The starting point is gross profit: revenue minus the cost of goods sold. Gross margin (gross profit as a percentage of revenue) measures the inherent profitability of your product or service before any overhead is applied. A healthy gross margin is essential because it is the pool of money from which all operating costs must be covered. If your gross margin is 30% and your operating expenses represent 28% of revenue, you have very little room for interest, tax, or profit before the business becomes loss-making.

EBITDA and EBITDA Margin

EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortisation. It is calculated as: EBITDA = Gross Profit − Operating Expenses (excluding D&A). Alternatively, EBITDA = Operating Profit (EBIT) + Depreciation + Amortisation. EBITDA is widely used by investors, banks, and acquirers as a proxy for operating cash generation, because it strips out non-cash charges (D&A) and the effects of capital structure (interest) and tax jurisdiction. When a business is valued on an EBITDA multiple, the multiple reflects the risk and growth profile of the business relative to peers. UK SMEs sold through business brokers are typically valued at 3 to 6 times EBITDA, while listed technology businesses may command 15 to 30 times EBITDA or more.

The limitation of EBITDA as a cash flow proxy is that it ignores capital expenditure (capex) requirements. A business spending heavily on equipment or infrastructure will have much lower true free cash flow than its EBITDA suggests. EBITDA minus capex (sometimes called EBITDAC or free cash flow to the firm) is a better indicator of cash-generative ability for capital-intensive businesses.

Operating Profit (EBIT) and Operating Margin

Operating profit, also known as EBIT (Earnings Before Interest and Tax), is calculated as: Gross Profit − All Operating Expenses (including D&A). Operating margin (EBIT ÷ Revenue × 100) measures the profitability of the core business operations, independent of how the business is financed and where it pays tax. Two businesses with identical operating margins but different debt levels will have very different net profit margins. Operating margin is therefore a cleaner measure for comparing the operational efficiency of businesses with different capital structures.

For UK businesses reporting under FRS 102 or IFRS, operating expenses below the gross profit line include: staff costs (for non-production employees), property costs (rent, rates, utilities), depreciation of fixed assets, amortisation of intangible assets, marketing and advertising, technology and software subscriptions, professional fees (audit, legal, HR), and other administrative expenses. Monitoring operating margin over time, or comparing it to prior periods, quickly highlights whether the business is leveraging fixed costs effectively as it grows.

Net Profit Margin: The Bottom Line

Net profit margin is what remains after deducting from operating profit both the interest costs on any debt the business carries, and the corporation tax charged by HMRC. For UK limited companies, corporation tax is charged on taxable profit (which differs from accounting profit due to capital allowances, disallowed expenses, and timing differences). Since April 2023, the main UK corporation tax rate is 25% for companies with profits over £250,000, with a small profits rate of 19% for profits at or below £50,000, and marginal relief tapering between the two thresholds.

A consistent net profit margin is a strong sign of business health. Margin compression over successive periods, where revenue grows but net margin shrinks, often indicates that costs are growing faster than revenue, or that pricing power is declining. The most common causes of net margin deterioration in UK SMEs are: salary inflation running ahead of price increases, rising energy and premises costs, increased finance costs as interest rates rise, and higher corporation tax rates introduced in 2023.

How to Use Margin Analysis Strategically

The real power of margin analysis lies in tracking all four margins simultaneously over time and understanding what drives changes in each. A business that sees its gross margin stable at 55% but its operating margin declining from 20% to 12% over three years is experiencing operating cost inflation, not a revenue or pricing problem. This tells you to look at the overhead cost base rather than the product pricing.

Conversely, a business where gross margin declines but operating margin holds steady may have a cost management system that is absorbing the gross margin pressure through overhead reductions, or it may be benefiting from operating leverage (fixed costs spread over a larger revenue base). Understanding the interplay between these margins is one of the most valuable skills in business financial management.

For businesses seeking bank finance or investment, presenting a clean multi-year P&L with visible margins at each level, alongside commentary on the key drivers, is far more compelling than a single net profit figure. Lenders and investors want to understand the quality and sustainability of your profitability, not just the headline number.

Frequently Asked Questions

What is net profit margin and how do you calculate it?

Net profit margin = (Net Profit ÷ Revenue) × 100. Net profit is revenue minus COGS, operating expenses, interest, and tax. A 15% net profit margin means 15p of every pound of revenue becomes net profit after all costs.

What is the difference between EBITDA margin and net profit margin?

EBITDA margin excludes depreciation, amortisation, interest, and tax, giving a picture of underlying operating cash generation. Net profit margin includes all of these. EBITDA margin is always higher than net profit margin and is commonly used by investors for valuation and bank lending assessments.

What is a good net profit margin for a UK business?

Retail: 2–5%. Technology/SaaS: 15–25%. Financial services: 20–30%. Professional services: 10–20%. Compare your margin to your sector benchmark rather than a universal standard, as capital intensity and business model heavily influence what is achievable.

What is operating profit margin and how does it differ from net profit margin?

Operating margin (EBIT ÷ Revenue) is profit before interest and tax. Net margin is after both. The gap between them reveals the burden of financing costs and the effective tax rate. A wide gap suggests significant debt or a high corporation tax charge.

How do I improve my net profit margin?

Improve gross margin first (raise prices or cut COGS). Then review operating expenses for inefficiencies. Refinance debt to reduce interest costs. Ensure you claim all allowable tax deductions including capital allowances and pension contributions. A combination of all four levers typically delivers the best results.

What does the P&L waterfall show?

The waterfall shows revenue progressively reduced by COGS (to gross profit), then operating expenses (to EBIT), then interest and tax (to net profit). It makes it immediately clear which cost category has the greatest drag on profitability.

How is corporation tax calculated for UK businesses?

From April 2023: 25% for profits over £250,000, 19% for profits at or below £50,000, with marginal relief between £50,000 and £250,000. Our calculator uses 25% as a simplified rate; your actual liability depends on adjusted taxable profit and applicable reliefs.

Author: Mustafa Bilgic (MB), UK Business Finance Specialist • Last updated: February 2026 • CT rates correct as of April 2023. Figures are for guidance only.