Dividend tax credit restricted

Dividend tax credit restricted

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It is possible I am being thick, but just completed a tax return where the salary is a few hundred below the PA and the dividends are such that £10k is taxable at higher rate.  No other income whatsoever.  My software has restricted the 10% tax credit by reference to the difference between the PA of £8,105 and the salary of £7,436.  Can anyone explain why this has happened?

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By Euan MacLennan
08th Oct 2013 14:59

Because ...

... the 10% tax credit settles the basic rate tax liability on the dividends. There is no basic rate tax liability on the £669 of dividends which are covered by the balance of the tax-free personal allowance.  Hence, the credit against the overall tax liability is reduced proportionately.

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By WillowTree
08th Oct 2013 15:30

Thanks Euan, I knew there must be a reasonable explanation

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