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Good Evening,
I know that the basic charge for Dividens is 10%, and therefore we calculate the Gross amount calculating (net amount x 100/90). However for Higher earners the rate jumps to 37.5%, shouldn’t we then calculate the gross amount as (Net amount x 100/ 62.5)?
In the example I have the information provided is:
Trading Income £152,000
Bank Interest £600
Dividen Income £4,500The Taxable income is calculated as:
£152,000 + (600 x (100/80) + (4,500 x (100/90)
Shouldn’t the charge be different in the case of the dividend?
Many thanks in advance!
Sorry but I’m afraid you are wrong here and the dividends are always grossed up for the 10% notional tax credit that attaches to dividend income irrespective of whether the taxpayer is then a basic rate, higher rate or additional rate taxpayer!
If the taxpayer receives bank deposit interest then it is always grossed up by 100/80 for the basic rate tax credit that attaches to it again irrespective of whether the taxpayer is then a higher or additional rate taxpayer.Many thanks for your reply,
In that case I am really confused about the Dividend rates that appear on the TAX RATES AND ALLOWANCES provided in the exam.
There are different Dividend rates depending on the Income band, when are we supposed to use the different percentages?
As I said above the dividend is always grossed up at 100/90 which always gives rise to a 10% tax credit to be deducted from tax liability to derive tax payable. The grossed up dividend is treated in the calculation of the tax liability as the top slice of the taxable income and if in basic rate band is taxed at 10%, in higher rate band is taxed at 32.5% and if in additional rate band is taxed at 37.5%. Have you worked through Chapter 2 of the OT notes??
Many thanks for the reply,
Yes, I have watched the lectures and everything is clear now (much clearer than with the private tuition provider I’m using!)
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