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Does dividend income impact basic rate band ?

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Indivdual has earned income above £150k plus dividend income of £1,200. To my mind dividend is fully covered by £2k allowance and shouldnt impact calculation. However, on inputting on HMRC site their calculation reduces the basic rate band by the dividend amount, so increasing the tax paid by 25% of £1,200.  Is this correct ?? 

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By David Ex
31st Oct 2021 22:26

Individual should be taking professional advice; they can afford it. And if you want free advice, you could at least say “please”.

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Replying to David Ex:
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By Leywood
31st Oct 2021 23:22

It gets worse by the day!

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By GR
01st Nov 2021 01:27

What are the exact figures you have put in?

I have put through £160k salary and £2k dividends into my personal tax software and the dividend comes out as tax free.

You must be using different numbers to me.

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Replying to GR:
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By lionofludesch
01st Nov 2021 06:36

GR wrote:

What are the exact figures you have put in?

I have put through £160k salary and £2k dividends into my personal tax software and the dividend comes out as tax free.

You must be using different numbers to me.

But does it use some basic rate band?

Try it with no dividends and see if there's a difference.

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Replying to lionofludesch:
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By GR
02nd Nov 2021 23:26

lionofludesch wrote:

GR wrote:

What are the exact figures you have put in?

I have put through £160k salary and £2k dividends into my personal tax software and the dividend comes out as tax free.

You must be using different numbers to me.

But does it use some basic rate band?

Try it with no dividends and see if there's a difference.

It doesn't use the basic rate band. The dividend is top slice and taxed at 0%.

If I remove the dividend completely the tax is still the same (compared with including the dividend)

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By lionofludesch
03rd Nov 2021 07:27

Yes, on reflection, you're right.

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By AdamMurphy
01st Nov 2021 07:46

If only HMRC had a dividend factsheet which gave the answer. Oh, they do. But no please or thanks in advance so I’ll be awkward and not post it.

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By rmillaree
01st Nov 2021 08:30

" To my mind dividend is fully covered by £2k allowance and shouldnt impact calculation. However, on inputting on HMRC site their calculation reduces the basic rate band by the dividend amount, so increasing the tax paid by 25% of £1,200. Is this correct ?? "

The dividend ALWAYS comes into the tax calculation - its just normally that the first 2k is normally taxed at 0% itself . Unfortunately with the complex waythe calcs work nowadays this can quite easily impact the tax calc in ways you may not expect - whether this is the case here or not we would need the full detail of all other income sources for this tax year.

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By Not Anonymous
01st Nov 2021 11:02

It got off to a bad start thinking there is an "allowance" for dividend income.

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Replying to Not Anonymous:
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By lionofludesch
01st Nov 2021 14:11

Not Anonymous wrote:

It got off to a bad start thinking there is an "allowance" for dividend income.

It started badly when thed Government decided to call something which isn't an allowance a "Dividend Allowance".

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By Duggimon
01st Nov 2021 11:05

The calculation you've generated is wrong. It's quite a basic one though so I would imagine the issue is with whatever you've put in rather than the HMRC system itself.

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By David Dret
01st Nov 2021 13:21

Thanks all for your replies. I was made redundant last year and as a consequence am in the unexpected position of paying at the 45% level and not having found another job trying to resolve myself. Consequently apologies for the naivety of the question framing. I am of course very grateful for any help (I was trying to keep the question professional, but accept the point).
Full input: Pay £174k (+£30k tax free), Rental income £4k, Dividends £1k. In the calculation the basic rate band has dropped by £1k. Presumably I can submit and then challenge HMRC to explain it and if I have incorrectly completed the return change it.
Thanks again

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Replying to David Dret:
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By lionofludesch
01st Nov 2021 13:35

David Dret wrote:

Thanks all for your replies. I was made redundant last year and as a consequence am in the unexpected position of paying at the 45% level and not having found another job trying to resolve myself. Consequently apologies for the naivety of the question framing. I am of course very grateful for any help (I was trying to keep the question professional, but accept the point).
Full input: Pay £174k (+£30k tax free), Rental income £4k, Dividends £1k. In the calculation the basic rate band has dropped by £1k. Presumably I can submit and then challenge HMRC to explain it and if I have incorrectly completed the return change it.
Thanks again

Well, you can do.

But they're actually right.

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Replying to lionofludesch:
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By km001
01st Nov 2021 14:40

The basic rate band has been used up by the non-savings income. The £1k dividends, being the top slice and within the dividend nil rate band, are taxed at 0% and thus have no effect on the liability. You should explain why you think the basic rate band would be reduced in this case. Quite baffling

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Replying to David Dret:
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By Leywood
01st Nov 2021 13:45

Too much presuming.

Which is why Accountants take years to train, so they don’t. Plus why they don’t work for free.

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Replying to Leywood:
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By Tax Dragon
01st Nov 2021 13:57

Leywood wrote:

Too much presuming.

Which is why Accountants take years to train, so they don’t.

I presume you mean other than in this forum.

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Replying to Tax Dragon:
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By Leywood
01st Nov 2021 14:03

I could be flippant and say ‘ah, but we are not giving advice’, but we know the great unwashed take every word as such, despite the constant reminders not to.

So, you got me there. Lots of presuming in here. Many times, lots of questioning to ascertain the facts, mostly though, as you know, these questions remain unanswered.

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Replying to Leywood:
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By AdamMurphy
01st Nov 2021 14:28

Especially when the person asking had gross income of over 200k

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