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What is Grossing Up? Its a UK Finance Term as defined below.

Grossing up

UK shareholders receive dividends with a tax credit of 10%. This means that a notional 10% tax has already been paid by the company paying the dividend and the amount you receive as a shareholder is "net" of that tax payment.But in order to calculate your individual tax liability on the income, which may be higher than 10%, you have to "gross up" the dividend - that is add back the tax deducted - and work out your tax liability from the gross figure.Example:You hold 1,000 shares in Bigyield plc which announces that it is paying a dividend of 9p per share. You actually receive 90 as a net dividend, but the company has also notionally but not actually paid 10 of the gross amount as tax on your behalf. So, although you only received 90, the tax position is: Actually received : 90.00 Tax credit: 10.00 Grossed up income: 100.00If you are a higher rate taxpayer, the amount you have to pay in total on the dividend is 32.5% which, on 100, is 32.50. Since you have a tax credit of 10, the additional amount payable is 22.50.Note that 22.50 is exactly a quarter of 90. A quick way for a higher rate taxpayer to calculate the additional tax payable on a UK dividend is to multiply the net amount received (90) by 25%.
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