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Dividend tax recovery through the client’s tax code

AAT_TeamAAT_Team Administrator Posts: 551
Please provide your feedback by 31 August 2016.

AAT is trying to establish if the following issue is widespread:

I have a client whose tax code has been adjusted for dividend tax recovery from 1100L to 265L

He takes a maximum no NIC salary (£670 per calendar month) and £30k dividends.

Per HMRC the dividend tax reduction is £8,341. This will increase the tax collected under PAYE by £8,040-£2,659 = £5,381 which at 20% is equal to £1,076.20

My quick calculation says that tax due on £8,040 + £30,000 - £ 11,000 = (£ 5,000 @ 0%) + (£22,040 @ 7.5%) = £ 1653. This is an under-collection.

So, the HMRC recovery only works if the employee earns at least the personal allowance.

How will HMRC collect the under-recovery?

If you are experiencing the same issue then please let us know:

1) How did you identify the issue?
2) Where was it identified? (does is relate to a particular tax or tax office)
3) When (date) was the issue identified?
4) How many of your clients are likely to be affected?
5) How many of your clients are known to be affected?
6) What is the impact on you, your clients and HMRC?
7) Have you identified a potential workaround, if so please give details?

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