What is Grossing Up? Its a UK Finance Term as defined below.
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%.
Add grossing.com to your favorites!