I have made a batch of butter icing, but it has come out too gritty for the cake. What can I do with it?

Sounds like you used the wrong kind of sugar. You haven't said what you used besides butter and sugar, but if those are the ingredients(aside from any flavouring), you could add a little milk, cream, or evaporated milk and make a cooked fudge. Chocolate would be an excellent addition, since white sugar doesn't make a good flavoured fudge all by itself. Look up a cooked fudge recipe. You'll see that it's mostly sugar, some butter, and a liquid.