Personal Tax - Dividends

JaneF

Hi All,

I was wondering if anyone would be able to explain why when calculating income tax liability you deduct the tax credit for dividends in some cases? I can't seem to follow the explanation in the BPP textbook and i am really struglling with this!

Any help would be appreciated,

thanks
Jane

burg

Dividends are a distribution of post-tax profits from a limited company. These are paid net of tax and for tax purposes are grossed up (x100/90). The 10% difference is a tax credit (a notional tax which satisfies tax at the basic rate).

The higher rate tax for dividends is 32.5%. Due to the tax credit any amount of dividends that falls into the higher rate the difference of 22.5% (i.e. 32.5 - 10) is due.