Corporation Tax Act 2009 section 1318

Meaning of grossing up

Section 1318 explains the concept of "grossing up" for corporation tax purposes and provides a formula for calculating the gross amount that should be brought into charge to tax.

• Grossing up is the process of converting a net (after-tax) amount back into the equivalent gross (before-tax) amount for corporation tax purposes.
• The formula works by taking the net amount received and calculating what the original gross sum would have been before tax was deducted at the applicable rate.
• This is necessary because certain payments are received by companies after tax has already been deducted at source, and the company must account for corporation tax on the full gross amount.
• The equivalent income tax rule for individuals is found in section 998 of the Income Tax Act (ITA), and this section provides the corresponding rule for companies within the corporation tax regime.