I am in the process of preparing a personal tax return for the 2016/17 tax year. I'm a little confused about the way in which tax on dividends is treated, as my calculation differs slightly to that of the tax software I am using.
Income received is as follows:
Pay from employment £855
Dividends from UK Companies £24,958
UK pensions (state & private) £41,578
I make the tax liability to be £12,772.95 ( (855+41,578-11,000)x20% + (24,958-5,000)x32.5% ).
The software comes to a tax liability of £12,702.07 ( 32,000x20% + 19,391x32.5% ).
In my calculation, I add up the employment and pension income, deduct the personal allowance of £11,000, to leave £31,433 to be taxed at 20%. The dividends are then taxed at 32.5% after accounting for the initial £5,000 tax-free allowance.
In the software's calculation, I see that all forms of income are added together, personal allowance is deducted to give total taxable income of £56,391. £32,000 of this is taxed at the basic rate of 20%. The £5,000 dividend allowance is accounted for and then the remaining £19,391 is taxed at 32.5%.
I'm sure the software must be correct, but I'd really appreciate another set of eyes on it, or a link to the rules on this so that I can better understand.
From a student eager to learn, thank you for any help.