£100k turnover isn't £100k income: where the money actually goes

This is the actual question, not "what's the difference between turnover and profit". Most trade business owners already know turnover isn't profit in the abstract. What catches people out is the size of the gap, and not knowing where specifically it went.

Turnover, business profit and personal take-home pay are three different numbers, in that order. Turnover is everything a business sells, before anything comes off it. Business profit is what's left after the real cost of delivering the work and running the business, before personal tax. Personal take-home pay is what's left after that, once personal tax, National Insurance and (for a limited company) how you choose to pay yourself are accounted for. This page focuses mostly on the middle step, turnover down to business profit, because that's the step most turnover-vs-profit content skips past, and it's the step a business owner has the most direct control over.

Before the worked scenarios, here's what's actually being subtracted, and why each one is a genuine cost of running the business rather than something that should be treated as profit until it's spent.

• ▸Materials: whatever the business buys in to complete the job. Varies enormously by trade and job type, and is usually the single biggest line for a materials-heavy trade.
• ▸Subcontractors: labour or specialist work bought in rather than done in-house. A real cost to the business paying it, separate from any CIS deduction, covered below.
• ▸Van and fuel: running, maintaining, insuring and eventually replacing the vehicle(s) the work depends on.
• ▸Tools and equipment: purchase, replacement and repair, spread across the year rather than showing up as one lump.
• ▸Insurance: public liability, tools cover, van insurance and any trade-specific cover, all a genuine annual cost regardless of how the year goes.
• ▸Software and accounting: job management or accounting software, bookkeeping, and an accountant's fees.
• ▸Marketing and lead costs: anything spent to win the work in the first place, from a website to paid leads to a fee taken by a lead-generation platform.
• ▸Waste, rework and callbacks: materials wasted, jobs that need revisiting, or work redone at the business's own cost. It doesn't happen on every job, but a real business plans for it rather than assuming it won't.

All three start at the same £100,000 turnover, stated excluding VAT throughout. That's a modelling choice, not a universal accounting rule: HMRC's own definition of VAT-taxable turnover, the figure used for the VAT registration threshold, is always excluding VAT, but a VAT-registered business using cash basis accounting is actually permitted to record its income and expenses either excluding VAT or including VAT for tax purposes, provided it does so consistently, with VAT paid to HMRC treated as an expense and any VAT repayment treated as income if the inclusive method is used. TBV uses ex-VAT figures throughout these scenarios because it makes the underlying trading economics easier to compare across businesses with different VAT positions, not because VAT itself can never form part of an accounting figure; see TBV's VAT threshold guide for how VAT-taxable turnover itself works. All three walk down to business profit before personal tax, National Insurance and any personal drawings, which is covered separately further down this page.

A solo tradesperson doing mostly labour-based work, buying in relatively little material, working alone with no employees or regular subcontractors.

A builder doing general building and extension work, where materials make up a large share of every job's value, working with occasional help but no regular subcontractor spend.

A small builder running a team through subcontractors rather than employees, doing some work personally and buying in the rest as subcontracted labour, alongside materials.

None of these businesses did anything wrong. The gap between them comes almost entirely from how much of that £100,000 had to be spent buying in materials and labour before the business overheads were even considered, not from one being better run than another.

Business profit isn't take-home pay. What happens next depends on how the business is structured, and this page deliberately stops before that point rather than adding a personal tax calculation that would need assumptions this page can't safely make about your own circumstances.

A sole trader's business profit is broadly their taxable profit, on which they then pay Income Tax and Class 4 National Insurance through Self Assessment, the same as any other self-employed income. A limited company pays Corporation Tax on its profit first, and the director then decides how much to draw out as salary or dividends, each taxed differently, with the rest able to stay in the business rather than being drawn out at all.

One genuinely relevant fact worth knowing, because it involves the same number this page is built around: the Personal Allowance, the amount of personal income not taxed at all, is reduced by £1 for every £2 that your adjusted net income is above £100,000, and disappears completely at £125,140. This is a different £100,000 to the turnover figure this page uses: it applies to your personal adjusted net income, not your business's turnover, and for a sole trader that means it only bites if your actual taxable profit, not turnover, reaches that level, which none of the three scenarios above do. It's mentioned here because it's a genuinely common source of confusion between "my business turned over £100k" and "my income is £100k", which are not the same £100,000 at all.

One more distinction is worth being explicit about before this page finishes: turnover, profit, cash and personal take-home pay are four different things, not four names for the same number. Profit, including the business profit figures above, measures whether income exceeded costs over a period on paper; it doesn't by itself tell you whether that money is actually sitting in the business bank account. A genuinely profitable business can still be short of cash because of unpaid customer invoices, money tied up in materials, stock or work in progress, a capital purchase such as a van or a machine, loan repayments, a VAT or tax bill falling due, or simply the normal timing gap between paying for a job and being paid for it. Cash and profit don't always move together: some cash going out doesn't reduce profit in the same period it's spent, and some things that do reduce profit don't move cash on the same day, so exactly how each of those situations affects your own profit figure depends on your accounting method and the specifics involved, which this page doesn't attempt to cover in full, that's a genuinely separate subject. What matters here is knowing the difference between profit and cash exists at all, rather than assuming a profitable year automatically means the money is there when you need it.

Profit kept in the business rather than drawn out personally is one of the things that can build toward a cash cushion for a bad month, an unplanned repair or a slow-paying customer. But keeping profit undrawn on paper doesn't create that cushion by itself: the cash still has to actually be there when it's needed, for exactly the reasons above, which is why a profitable business can still run into a genuine cash squeeze.

Chasing more turnover without checking what it costs to deliver is how a business can get busier and end up worse off, not better off. Taking on more work at the same margin just means moving more money through the same narrow gap; taking on work that eats into margin to win it can shrink the gap further even as turnover goes up.

This is why the pricing decision matters more than the turnover figure itself. A rate that doesn't cover your real costs and a fair margin isn't a discount, it's a business quietly working for less than it's worth. TBV's rates guide and calculator work through how to set a rate that actually covers your costs and target margin, which is the lever that changes the gap shown in the scenarios above.

• ▸What did materials and any subcontractor payments actually cost across your last 12 months, as a proportion of what you invoiced?
• ▸Do you know your van, tools, insurance and software costs as annual figures, or only as they land month to month?
• ▸Do you set aside anything for waste, rework or a bad job, or does it just come out of whatever's left when it happens?
• ▸How many hours a week go on quoting, admin and chasing payment that you don't bill for directly?
• ▸Is what's left, after all of that, actually enough, before personal tax is even taken into account?
• ▸If it isn't, is the honest fix more turnover, or a different price?

The three worked scenarios on this page are TBV's own illustrations, built to show the mechanics of turnover versus profit for different trade-business shapes. They use round, clearly labelled figures chosen to demonstrate the point, not measured, surveyed or averaged data, and they are not a claim about what any real business earns.

We looked for a credible, dated UK trade-specific source for typical materials, overhead or profit-margin figures by trade before writing this page, specifically so we wouldn't need to fall back on invented scenarios. We did not find one: published figures from accountancy and industry-marketing sources for UK construction/trade net margins ranged from roughly 5% to 40%, depending on how each source defines margin and what it's measured against, with no primary UK government dataset (such as ONS) publishing a comparable trade-specific figure that we could locate. Rather than present any single one of those figures as "the average", or invent our own, we built clearly labelled scenarios instead and said so.

The handful of statutory facts stated on this page (the VAT threshold and how VAT-taxable turnover is defined, the cash-basis VAT accounting rules, the Personal Allowance taper, how a CIS deduction works) are checked directly against current GOV.UK guidance, dated below. Everything else here is general business education, not personalised financial, tax or accounting advice, and it does not calculate what you would personally take home.

Next review: if a credible UK trade-specific profitability benchmark is published, to consider adding it alongside the illustrative scenarios, or within 90 days of the date above, whichever comes first.