2019 Tax Calc Quandary

• Accounting Entries for Group restructure

In the 2019 tax year I had employment of £43193 gross and £6000 Dividends

HMRC worked out the tax thusly:

minus Personal Allowance: £11,850.00

£37,343.00

Basic rate £34,500.00 x 20% £6,900.00

Higher rate band at nil rate £0.00 x 0% £0.00

Dividends from companies etc

Basic rate £0.00 x 7.5% £0.00

Higher rate at nil rate     £2,000.00 x 0%  £0.00

Higher rate £843.00 x 32.5% £273.97

Income Tax due : £7,173.97

minus Tax deducted at source: £6,267.00

Total Income Tax due: £906.97

It appears that the calculation has tax £3157 of the dividends at 20% whereas I think it should be 7.5%, what am I missing?

Replies (5)

By SXGuy
25th Sep 2020 15:27

7.5% is up to the basic rate tax band. And after other income. You used up the basic rate tax band in employment income and so dividends are taxed at the normal rate of 32.5%

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By Gert
25th Sep 2020 15:50

I thought it would be taxed like this:

Employment
£43193 less PA = £31343
£31343 at 20% = £6268.60

Dividends
£2000 at 0%
£3157 at 7.5% = £236.76
£843 at 32.5% = £273.98

Total = £6779.34
Less at source = £6267.00
Tax due = £512.34

?

Thanks (0)
By DJKL
25th Sep 2020 15:58

If you want the £2,000 at 0% on the divs you need to pay an extra 20% (taking you to 40%) on some of the employment income as you need to reduce the basic rate band used against same, so add £2,000 @20%, an extra £400 and you get to £912.34 due.

You do not get the £2,000 div allowance on top of your basic rate band, it is in effect part of it.

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By DJKL
25th Sep 2020 15:54

If I recall correctly the first £2000 divs take £2,000 out of your basic rate band which I think you may have missed.

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By lionofludesch
26th Sep 2020 11:35

DJKL wrote:

If I recall correctly the first £2000 divs take £2,000 out of your basic rate band which I think you may have missed.

Yes.

Employment
£43,193 less PA = £31,343
£31,343 at 20% = £6,268.60

Dividends
£2,000 at 0%
£1,157 at 7.5% = £86.77
£2,843 at 32.5% = £923.97

Your £34,500 basic rate is covered by £31,343 + £2,000 + £1,157

Your £2,000 isn't a tax free allowance, it's a nil rate band.

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