It sounds like there should be one straightforward answer to the question:
“How much profit did my business make?”
But in practice, there can be more than one figure depending on what you’re trying to understand.
Your ‘accounting profit’ is the figure you’re essentially looking at when you open your Profit and Loss report in Xero: the income your business has earned, less the costs that belong to that period.
Your ‘taxable profit’ is different.
It starts with the accounting figures, but then applies the separate rules and adjustments needed for tax purposes. So the profit figure you see at the bottom of your Xero P&L isn’t necessarily the figure you’ll ultimately pay tax on.
Understanding the difference, matters.
Accounting profit is generally more useful when you’re trying to understand how the business itself is performing. It gives you a picture of the income you’ve earned and the costs associated with running the business over that period.
Taxable profit has a different job: helping determine how much tax is due.
There may be costs in your accounts that aren’t allowable for tax purposes, or tax reliefs and allowances that affect the taxable figure differently. The exact adjustments will depend on your business structure, how your accounts are prepared and your individual circumstances.
So if Xero says you’ve made £40,000 profit, that doesn’t automatically mean you’ll pay tax on exactly £40,000.
But equally, that doesn’t make the Xero figure less useful – it simply has a different purpose.
Your accounting profit helps you understand how the business performed.
Your taxable profit helps establish how much profit is subject to tax.
Same business, same underlying figures, different purpose.
