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Please explain how tax (tax rate applicability) is calculated on dividend income considering the sequence of non saving and saving income.
I am not a tutor, but this is the answer to your question:
This is all you need to know for the exam, in an Income Tax Question, which will be the first question in ACCA F6 UK Taxation paper, it will involve either a trader or a normal individual.
They will say he/she has received dividends of a certain amount, and this amount will also be the NET amount, what you need to do is GROSS it up, you gross it up by simply multiplying the NET amount of dividends received by the individual (given to you) and times it by 100/90 and this will give you the gross amount, and you put this figure under the heading of Dividend Income (the three headings for INCOME TAX is Non-savings Income, Savings Income and Dividend Income).
Example,
Hamish received dividends of £4,500 from HSBC plc.
(This amount is NET amount, you multiply the £4,500 by 100/90 and you get £5,000 which is the gross amount and the amount you include to calculate your total income tax liability).
Taxable income is taxed in the following order:
Non Savings income
Savings income
Dividend income
Any dividend income falling within the basic rate band is taxed at 10%, within the higher rate band at 32.5% and if within the additional rate band at 37.5%
Please work through the notes and examples within chapter 2 of the OT course notes
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