Glossary

drawings
If a business is a sole trader or partnership basically the ‘salary’ is in fact drawings which are taken out of the business. Tax is not paid on drawings but is assessed on the profits of the business.
gross profit
Profit made directly on sales. Gross profit = sales − cost of goods. Does not include business expenses etc.
net profit
The profit after all costs, are taken into account. Net profit = sales − cost of goods − operating expenses − other expenses − interest − taxes.
turnover
Turnover is the amount of money taken by a business in a specified period, usually annually. It is simply a term that means the total amount of money entering the business from sales. It includes money spent on raw materials, hire equipment and subcontracting. For example, a kitchen fitter who fits a new kitchen for a client has two choices: either the client buys the kitchen for £5000 and the fitter charges £1000 to fit it (so the turnover for the fitter would be £1000); or the fitter buys the kitchen for £5000 and fits it for £1000 (so the turnover would be £6000). Even though the amount of money earned is the same, the turnover depends on who pays for the kitchen.
VAT
Value added tax. Currently a 20% tax applied to goods and services from VAT registered businesses.