Gross income is the sum total of everything you earn: literally the gross amount of money you receive from all your sources of income put together.
It’s an important figure to know, because you need to declare your full amount of income to the government in order to pay the right amount of tax.
In this post, we’ll explain how to calculate your gross income from the different sources of income (or income streams) that you have.
What does gross income mean?
Gross income is the total amount earned by a business or individual over a certain period of time. It’s usually measured on a yearly basis, so it’s your gross annual income.
Your gross income definition is actually slightly different depending on whether you are a business or an individual.
Gross income for businesses
For a business, your gross income is equal to your total sales revenue minus the costs of goods sold. This figure is also known as “gross profit”.
It’s the income you get from selling a product or service but less the cost of making the product or providing the service.
Your company makes hand-carved wooden chairs.
Revenue from selling the chairs = £50,000
Cost of making the chairs (including wood, carpenter’s wages, etc.) = £25,000
£50,000 sales revenue - £25,000 costs = £25,000
Therefore, your gross income is £25,000.
This figure of £25,000 gross income would then be subject to further deductions from business tax.
Gross income for individuals
As an individual, your gross income is the total amount of money you have earned from your job and other sources of income. Any of the following can contribute to your gross income:
- Salary from your main job, plus any bonuses, overtime pay, or benefits such as a company car
- Salary from a secondary job or jobs
- Earnings from self-employed or freelance work
- Tips received while at work
- Income from shares (dividends)
- Rental income
- Interest from savings accounts
- Income from a trust
- Some state benefits
- Maintenance payments
- Income from selling your belongings
You need to be careful that you’ve declared all your different sources of income when you submit your tax return, or you could find yourself in trouble with HMRC.
Let’s take a look at an example of an individual’s gross income:
You have a salary of £45,000 from your office job.
You earn £500 in a year from interest on a savings account.
You sell some old furniture and antiques from your attic for £600.
To calculate your gross income, you simply need to add all these figures together:
£45,000 + £500 + £600 = £46,100
Your gross income for this year is £46,100.
This is the figure that you’ll submit to HMRC for them to calculate the amount of tax that you need to pay. After tax is deducted, the money that remains is known as your net income.
Certain types of income aren’t taxable in the UK. You’ll still need to declare these to HMRC but you won’t have to pay tax on them. Tax-free sources of income include:
- Income from tax-exempt accounts, such as ISAs (Individual Savings Accounts)
- National Lottery wins
- Rent from a lodger that falls below the rent a room limit
- The first £1,000 of income from self-employment (also known as your trading allowance)
Gross income: Key takeaways…
As an individual taxpayer, it’s important to remember that your gross income includes all the sources of income you have – not just your main employment.
If you’re earning extra money from freelance work, interest on a savings account, or even something as simple as selling your belongings online, you still need to declare that income to HMRC.
To find out more about gross income, check out our other blog posts:Open an account in minutes
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