How to explain this to someone

How to explain this to someone

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I am trying to determine the tax rate on extra dividend once someone is losing their PA  eg if director is already receiving  £90,000 dividends

I can easily explain that dividends are taxed at a gross rate of 32.5%, and they come with a 10% tax credit.

But once the PA is withdrawn the tax rate varies according to the level of the divi.

Ie when £10 is declared 60p is payable. 

when £100 is declared £44.35 is payable

when £1,000 is declared £481.85 is payable.

If he has salary of £90,000 the same amount of dividend gives £4.47, £46.97, and £471.97.

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By Portia Nina Levin
19th Dec 2014 11:18

Are you sure your numbers are right?

With net dividends of £90,000, your gross income is £100,000. There is no tax on the first £41,450 (2013/14), and the tax at 32.5% with 10% tax credit on the remaining £58,550 is £13,173.75.

With net dividends of £90,009, your gross income is £100,010. There is no tax on the first £41,445, and the 22.5% further tax on the remaining £58,565 is £13,177.13. That is an increase of £3.38 or 33.75p per £1 of gross dividend. It is 37.5p per £1 of net dividend (25p x 1.5).

With net dividends of £90,090, your gross income is £100,100. There is no tax on the first £41,400, and the 22.5% further tax on the remaining £58,700 is £13,207.50. That is an increase (over the £90,000 dividend level) of £33.75 or 33.75p per £1 of gross dividend. It is 37.5p per 31 of net dividend (25p x 1.5).

With net dividends of £90,900...

If you do the same thing with a salary, you need to start with a salary of £100,000.

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By Alan Deakin
19th Dec 2014 15:10

duh!!

I have realised what I have done now.

I have put a salary in of £7,696, and of course the extra tax rate is going to vary because the PA loss comes off the first lot of income.

Thanks PNL!

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