DIVIDENDS - NOTIONAL TAX CREDIT - CONFUSED

If you look at Chapter 2 page 7, notes 2.1 and 2.4 you will see that we state regarding the tax credit on interest income: "This tax credit is refundable if the amount deducted at source exceeds the Tax Liability of the taxpayer" and in relation to dividend income: "As no tax has actually been paid no repayment can therefore arise if this credit exceeds the Tax Liability. For this reason the notional tax credit on dividends is always deducted first." - note the last sentence here that you did not quote above! So any tax credits on interest income received net and any PAYE deducted from employment income are deducted from tax liability before the notional tax credit on dividends is deducted and may not only reduce tax liability but may also create a tax repayment. The notional tax credit on dividends may only reduce the tax liability and may not go on and create a tax repayment. Thus if the notional tax credit on dividends is larger than the tax liability this will reduce that liability to nil - if there are then further tax credits on interest and through PAYE these will then go on to generate a repayment. Work the examples that follow (along with the lecture) to see how this works.

I'm totally confused about the notional ta. Credit

Nothing to be confused about - tax is mostly a set of rules decided upon by individuals - there is no "why" there is simply "is". This "is" the rule that we use and you follow it! You gross up the dividend received by 100/90 and include on the income tax computation. You apply the dividend tax rates to compute tax liability and if asked for tax payable you deduct the 10% tax credit first but this can only reduce the tax liability down to nil, it cannot create a repayment. As the saying goes - "just do it"!