HELP PLEASE

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:26AM in AAT student discussion
June 06 PTC

Why is £355 taxed at 10% in Task 1.4????????????

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HELP PLEASE

    This is because the taxpayer falls into the higher rate bracket but becuase he has made a gift aid contribution and pays pensions this extends his basis rate band and therefore saves the highest amount of taxable income which in this case is dividends.

    You have to grossed up pensions plus the gift to give you £8,050 this is by how much you basic rate band increase to i.e £40,095.

    You then take the top slice of income being the extend 22% which is £7,695 minus the £8,050 giving £355. This is the amount left to use up all the extended band but as it's dividends its taxed at 10% the remainder being the excess dividend taxed at 32.5%

    Sorry that might not be totally clear as i've just worked it out in my lunch break and closed all the screens before replying.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HELP PLEASE

    I understand all of the reasons for extending the bands, I just still cant see why the whole amount resulting from the extension isnt taxed at 22%
    Sorry if Im just not seeing a simple thing, but it happens sometimes! :lol:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HELP PLEASE

    I see what it is... let me revise me original post.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HELP PLEASE

    Does that explain things now Paul?

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HELP PLEASE

    Not straight away no, but Im sure when I sit down and go through it it will.

    Thanks mate
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HELP PLEASE

    Your welcome.

    All that is happening is that because of the basis rate extention the taxpayer isn't paying 40%.

    His highest rate of tax is the 32.5% dividends.

    So to use up the additional part of the extention we tax the dividends at 10% with the balance that has used up all the basis rate and the extention being taxed at the highest rate of tax being 32.5%.

    Regards

    Dean

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