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Disregarded Income - Is Iris wrong?

Non-Resident receiving UK salary and dividends - Tax liability correct?

Good morning all, I have a non-UK resident client who has received UK salary (nominal) and dividends in 2017/2018. I use Iris software which is calculating a zero income tax liability on a salary of £8,160 and dividends of £25,000 and I believe this to be incorrect. The rules at S811 ITA 2007 (and at SAIM1170) indicate that the liability should be limited to the lower of the tax due on the salary without receiving the benefit of the personal allowance, or the tax due on the dividends without them being treated as disregarded income, which in this case would be the latter option, £1,249.50 (as being lower than £1,632.00). I can't understand why Iris is calculating a zero liability and, on speaking with them, they say they are following HMRC guidance and that they use an HMRC calculator which gives the same result. They also state that this is not an exclusion case. Am I missing anything? What do you think? Thank you in advance.

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10th Dec 2018 11:49

s811 is a limit on income tax, it is not a minimum. So ignoring s811 the income tax payable for a non-resident on this income would be dividends above the PA (and dividend allowance) taxed at 7.5%. As a non-resident he is also entitled to a tax credit of 7.5% on the same dividends, so the net tax is zero. The s811 limit is therefore irrelevant.

EDIT - this assumes of course that the non-resident is entitled to a Personal Allowance.

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10th Dec 2018 12:15

As suggested by Tim you are looking in the wrong place (S811) for your answer. You need to be looking at S399 ITTOIA 2005:-

399(1) This section applies if–

(a)a personʼs income for a tax year includes a distribution of a company, and

(b)the person is non-UK resident.

399(2) The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution.

399(3)–(5) [Omitted by FA 2016, s. 5 and Sch. 1, para. 11(4).]

399(5A) [Omitted by FA 2016, s. 5 and Sch. 1, para. 11(5).]

399(6) The income tax treated as paid under subsection (2) is not repayable.

399(7) [Omitted by FA 2016, s. 5 and Sch. 1, para. 11(6).]

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10th Dec 2018 13:09

Ah, thank you both - I hadn't realised that he was entitled to a notional tax credit on the dividend income. (The last time I did one of these was pre-April 2016 so tax credits were still in existence). And yes Tim, he is entitled to PA.

Thanks again.

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