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Allocation of profit in software calculation

Doesn't seem to be using 7.5% band

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I think I have January brain freeze but my tax software is showing the following calculation:-

Pay from all employments £46,946

Profit from partnerships. £2,862

Dividends from UK companies £7,000

Total income received £56,808

minus Personal Allowance£12,500

Total income on which tax is due £44,308

How I have worked out your Income Tax

Pay, pensions, profit etc. (UK rate for England and Northern Ireland)

Basic rate £37,500 x 20% = £7,500.00

Dividends from companies etc.

Basic rate £0 x 7.5% = £0.00

Higher rate band at nil rate £2,000 x 0% = £0.00

Higher rate £4,808 x 32.5% = £1,562.60

Total income on which tax has been charged

£44,308

Income Tax charged after allowances and reliefs £9,062.60

 

As the dividends were £7000, it seems to be calcuating £192 of them at 20% rather than 7.5%.

What am I missing please?!

Replies (9)

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By bigdave1971
22nd Jan 2022 10:54

I could be wrong too but I would have expected £192 less charged at 20%.

Would the £192 then have been part of the £2,000 dividend allowance? Thus the £5,000 dividends would all be charged at 32.5%?

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Danny Kent
By Viciuno
22nd Jan 2022 10:55

Strange. What software are you using?

Is the software allocating some of the PA to the dividend income for some reason?

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Replying to Viciuno:
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By rmillaree
22nd Jan 2022 10:59

"Is the software allocating some of the PA to the dividend income for some reason?"
Yes - if it saves tax would be silly not too :)

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Replying to rmillaree:
Danny Kent
By Viciuno
22nd Jan 2022 16:06

Haha, didn't even cross my mind!

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By rmillaree
22nd Jan 2022 10:55

Yeah can see why you would get brain freeze ref the above in January - being honest i can do manual calcs but sometimes i need the computer to point me in the right direction of how to get the "most efficient use of allowances" - practicably speaking you would need to setup a spreadsheet to workl out those scenarios.

That is the case here (it is quite rare) client will be paying less tax by allocating dividends against perosnal allowance so thats what you do - aint that common but that is the case here £192 of dividends is in personal allowance so £192 of employment/sole trader is not in the personal allowance.

Presuming its not an online exclusion case (traditionally these types of quirky ones are more likely to be online exclusion !!) then i have never found the software to be wrong - do a manual calc allocating the salary against the pa and you should see the tax goes up - if it doesnt that would suggest its an olin eexclusion case.

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Replying to rmillaree:
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By bigdave1971
22nd Jan 2022 11:02

rmillaree wrote:

Yeah can see why you would get brain freeze ref the above in January - being honest i can do manual calcs but sometimes i need the computer to point me in the right direction of how to get the "most efficient use of allowances" - practicably speaking you would need to setup a spreadsheet to workl out those scenarios.

That is the case here (it is quite rare) client will be paying less tax by allocating dividends against perosnal allowance so thats what you do - aint that common but that is the case here £192 of dividends is in personal allowance so £192 of employment/sole trader is not in the personal allowance.

Presuming its not an online exclusion case (traditionally these types of quirky ones are more likely to be online exclusion !!) then i have never found the software to be wrong - do a manual calc allocating the salary against the pa and you should see the tax goes up - if it doesnt that would suggest its an olin eexclusion case.

Yes, spot on ... rare indeed.

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By D V Fields
22nd Jan 2022 11:04

How much tax you pay on dividends above the dividend allowance depends on your income tax band - per HMRC. Looks like they have moved out of the basic rate band.
I used Taxfiler and got the same calculation as you.

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By Wanderer
22nd Jan 2022 11:39

£46,946+£2,862-£12,308 (PA) =£37,500 @ 20% = £7,500.00.
£7,000 - £192 (PA) = £6,808 - £2,000 = £4,808 @ 32.5% = £1,562.60.

i.e. you get the benefit of the whole of the £2,000 0% band being allocated against dividends that would fall into the £32.5% band.
So you save 32.5% at the cost of 20%.

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By MCV71
22nd Jan 2022 17:14

Thanks for the replies. I'm using Taxfiler and the answers above explain why it came out with result it did.
At least I can issue that Return now, one more to do tomorrow then that's it thankfully.

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