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Dividen rate for Higher band?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA TX-UK Exams › Dividen rate for Higher band?

  • This topic has 5 replies, 2 voices, and was last updated 7 years ago by Tax Tutor.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • October 17, 2015 at 9:13 pm #276925
    Sergi
    Member
    • Topics: 11
    • Replies: 18
    • ☆

    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 £4,500

    The 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!

    October 19, 2015 at 3:39 pm #277558
    Tax Tutor
    Member
    • Topics: 2
    • Replies: 3965
    • ☆☆☆☆☆

    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.

    October 19, 2015 at 6:52 pm #277630
    Sergi
    Member
    • Topics: 11
    • Replies: 18
    • ☆

    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?

    October 26, 2015 at 9:11 am #278986
    Tax Tutor
    Member
    • Topics: 2
    • Replies: 3965
    • ☆☆☆☆☆

    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??

    October 30, 2015 at 2:41 pm #279686
    Sergi
    Member
    • Topics: 11
    • Replies: 18
    • ☆

    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!)

    November 2, 2015 at 10:15 am #280047
    Tax Tutor
    Member
    • Topics: 2
    • Replies: 3965
    • ☆☆☆☆☆

    Carry on working through the OT notes together with the lectures – good luck with your studies

  • Author
    Posts
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