PTX - Dividends Question

Lolo Bean

Hi guys,

I wonder if someone can give me abit of guidance with regards to dividends received?

£400 dividends received.

What is the Gross amount of these dividends???

---

Now I know that dividends are received Net and therefore we need to Gross them up.

So I calculated 400/100*90 = £444.44 as the Gross amount.

But the correct answer is £440. 10% of the £400 would give me £40 then add that to the £400 to get £440 but I though that you had to do the 100/90 calculation?

Please help, very confused :crying:

Melody87

wow you have thrown a spanner in the works for me too I have been doing the 100/90 calculation as the book instructs and it seems to have been fine. On the other hand it makes more sense for the answer to be £440 as the VAT should be 10% of the net amount... or should it....

Sorry I'm of no help!

Richard

Lolo Bean wrote: »

Hi guys,

I wonder if someone can give me abit of guidance with regards to dividends received?

£400 dividends received.

What is the Gross amount of these dividends???

---

Now I know that dividends are received Net and therefore we need to Gross them up.

So I calculated 400/100*90 = £444.44 as the Gross amount.

But the correct answer is £440. 10% of the £400 would give me £40 then add that to the £400 to get £440 but I though that you had to do the 100/90 calculation?

Please help, very confused :crying:

The 100/90 is the correct way of grossing up the dividend received. Is the answer being rounded for simplicity? I know some exams sometimes tell you to round to nearest pound.

Monsoon

£440 is wrong.

The correct answer is £444.

10% of £440 is £44. £440 - £44 = £396. £396 is not £400!

£440 is wrong.

Lolo Bean

Hi Monsoon,

I recently had this question in my Personal Tax exam. I gave the answer of £444.44 however I was marked incorrectly. When I received my feedback sheet, this question fell into the 'Did not meet' section. I also spoke to my lecturer who agreed that dividends are grossed up by 100/90.

uknitty

When you look at the feedback sheet does it explicitly show that the correct answer is £440 ?

Also does it show the answer that you have given ?

Jo Clark

I thought feedback was more generalised and did not detail specific questions/answers as each student has different questions.

The feedback reports I have seen for Level 4 didn't list detailed questions and answers, more a brief summary of the area being examined. I still found the report useful.

I am awaiting my PTX results so will ask for feedback whichever way the results go as will be interested to see what type of feedback I receive for this module compared to others.


JC

uknitty

I've never received any feedback on my level 4 exams (external student so the college has not requested for me) so I have no idea what these reports look like.

I do know from my own personal experience I have gone back over to review mock exams and not for the life of me been able to work out why I have been marked as giving a wrong answer - only to discover that although I have calculated answer "a" I have somehow managed to tick box "b".

guinea pig

This is so weird, the calculation for dividends is definately 100/90, I have had feedback reports, but they have only specified the areas, Exceeded, met, borderline & did not meet.
Just looked on the HMRC site:

"How tax credits are worked out
The dividend you are paid represents 90 per cent of your 'dividend income'. The remaining 10 per cent of the dividend income is made up of the tax credit. Put another way, the tax credit represents 10 per cent of the dividend income.
Dividend income at or below the £34,370 basic rate tax limit
Dividend paid to you (represents 90% of the dividend income)
Tax credit (10% of the dividend income)
Dividend income (dividend paid plus tax credit)"

If you look on the site there are examples.
I would query with the AAT.
GP

Monsoon

£440 is definitely wrong. I'd bet the missing £4 on it!

Seriously - take this up with someone if it's important - I assumed it was just a text book practice question.

jamesm96

Monsoon wrote: »

£440 is definitely wrong. I'd bet the missing £4 on it!

Lol.

Monsoon's completely right, obviously.

Think of it in real layman terms:

The dividend received is deemed to be paid net of a 10% tax. In other words, whatever amount is actually paid is only 90% of the 'whole' dividend.

So if the dividend received was £400, this is only 90% of the full dividend. So, let's divide that into 90 units of 1% each (i.e. £400 / 90) which means that £4.44(recurring!) is 1% of the full dividend.

Multiply that by 100 to find out what the full, 100% dividend (or 'gross' dividend is) = £444.44

Like Monsoon said, 10% of £440 is £44, which leaves you with a net dividend of £396, not £400!


Unless there really is a glaring mistake in the exam, I would only guess that the instructions were to round to the nearest £10? (So they're penalising failure to follow instructions rather than technical accuracy.)