Direct labour costs for the period
Factory overhead, utilities, depreciation
Value of inventory remaining at period end
Reg. 07380272 · England & Wales · Est. 2010
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Cost of Goods Sold
£56,000.00
Goods Available for Sale
£68,000.00
Gross Inventory Added
£58,000.00
Proportion of Goods Available for Sale by component
Everything you need to know about COGS for your business
What is Cost of Goods Sold?
Cost of Goods Sold (COGS) represents the direct costs attributable to the production or purchase of goods that a business sells during a specific period. It includes the cost of materials, direct labour, and manufacturing overhead directly tied to the production process. COGS is a critical figure on the income statement because it is subtracted from revenue to determine gross profit. For UK businesses, accurately calculating COGS is essential for Self Assessment, Corporation Tax returns, and VAT reporting.
What's included in COGS?
COGS typically includes three main categories: raw materials and purchases (the cost of goods bought for resale or raw materials used in manufacturing), direct labour (wages and salaries paid to workers directly involved in producing goods), and manufacturing overhead (factory rent, utilities, equipment depreciation, and other costs directly related to production). It does not include indirect costs such as sales expenses, administrative costs, or distribution expenses — these are classified as operating expenses.
Why is COGS important?
COGS directly affects your gross profit, which is revenue minus COGS. A lower COGS relative to revenue means a higher gross profit margin, indicating more efficient production or purchasing. COGS is also a tax-deductible expense — accurately tracking it ensures you claim the full deduction you are entitled to on your HMRC tax return. Additionally, monitoring COGS over time helps with pricing decisions, inventory management, budgeting, and identifying cost-saving opportunities in your supply chain or production process.
How does COGS differ from operating expenses?
COGS is directly tied to the production or procurement of goods sold by the business. It only includes costs that can be traced to specific products or units of production. Operating expenses, on the other hand, are indirect costs necessary to run the business but not directly linked to producing goods. Examples of operating expenses include office rent, marketing costs, administrative salaries, and software subscriptions. On the income statement, COGS is deducted from revenue to arrive at gross profit, while operating expenses are deducted from gross profit to arrive at operating profit (EBIT).
HMRC-Aligned: This calculator uses standard accounting principles recognised by HMRC for calculating Cost of Goods Sold. For complex manufacturing or multi-product businesses, consult a qualified accountant to ensure your COGS is calculated correctly.
Reviewed by M. Samiuddin Quadri, ACCA — Chartered Certified Accountant at Gladstone & Co. · Updated for the 2025/26 tax year.
Disclaimer: This calculator provides estimates based on current HMRC rates and thresholds for the 2025/26 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified accountant or tax adviser before making financial decisions. Read our terms