grossing up
Also known as gross up. Calculating the before tax value of a payment. If, for instance, A is supposed to be paying 100 of interest to B but has to withhold tax at, say, 10% it will pay 90 to B and 10 to HM Revenue & Customs (HMRC). In such a case the loan agreement will often require A to pay to B such further sum as will ensure that B actually receives and retains 100. At first glance that sum may seem to be 10. However, that 10 itself may be subject to withholding tax, in which case A should pay 9 to B and 1 to HMRC. A would then still be obliged to pay 1 to compensate B but again withholding might apply and it might pay 0.9 to B and 0.1 to HMRC. This process is called grossing up. A gross-up clause is one which makes it clear that A has to pay such further sum as, after deducting any tax, leaves B with 100. If the withholding tax rate is 10% the grossing up formula is:
(amount of interest x 100) ÷ 90.
Related links

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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