Question on Finance ACT 2010

@luck2009,

Hi , this split is because here you apply tax rate to savings and non savings income at the same time.
they both don’t exceed the first band of 37.400, so they both are taxed at 20%.
You could present it like this.
Taxable income is your non-savings income after deduction of personal allowance, so it will be 37.000 – 6.475 = 30.525
30.525 x 20% = 6.105.
Then you apply same tax to your grossed non -savings income : 1.000 x 20% = 200.
So in total u get 6.105 + 200 = 6.305.
Or if you present it like in the example from FA it is : (37.000 + 1000 – 6.475 ) x 0,2 = 6.305.
And the rest are your diviends , here you apply two rates for dividends of 10 and 32.5 %.
when total income (savings and non savings after deduction of personal allowance plus dividends) exceed first band of 37.400 , u apply the higher rate for divends.
Before this first band u apply the rate of 10%.
So as u can see before, savings and non savings together give u 31.525.
Now u have grossed about of dividends of 10.000
so u need to see how much of this 10.000 will give u income before 37.400
that is 37.400 – 31.525 = 5.875.
So u apply the rate fof 10% to this sum
and the rate of 32.5 to the rest.

Hope it helps 🙂

good luck with your studies!