What is Gross-Up?

Full Definition

Gross-up is the calculation used to find the gross amount that, after tax and sometimes National Insurance are deducted, leaves a specified net figure. It is the reverse of a normal tax deduction. A common example is an employer who agrees to pay an employee a fixed net bonus: the employer must gross up the figure so that, after Income Tax and NI, the worker actually receives the promised amount. For a basic-rate taxpayer in 2026/27 (20% Income Tax plus 8% employee NI), leaving 72p net of every 1 means the gross-up factor is 1 divided by 0.72, so a 720 net bonus costs about 1,000 gross. Higher-rate taxpayers (40% tax, 2% NI above the upper earnings limit) face a 58% retention rate and a larger gross-up. Gross-up also appears with savings and dividend income that was historically paid net of a tax credit, and in PAYE Settlement Agreements where the employer pays the tax on a benefit. Because grossing up can itself push income into a higher band, an accurate calculation sometimes requires iteration across tax thresholds rather than a single fixed multiplier.

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