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Restriction of dividend tax credit

Restriction of dividend tax credit

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It seems from the calculation below for 2014-15 (taken from HMRC online) the use of the dividend tax credit is limited to the lower of the tax credit (10% of gross dividend) and 10% the income on which tax is due.

Here £500 of dividend tax credit is lost because the self-employment income was £5,000 below the PA.

This seems to be a new rule as I always understood that the limitation was simply to not allow a refund of the tax credit.

Can anyone explain?

Profit from self-employment £5,000.00
Dividends from UK companies (plus 10% tax credits) £80,000.00
Total income received £85,000.00
minus Personal Allowance £10,000.00
 
Total income on which tax is due £75,000.00
 

How we have worked out your income tax

  Amount Percentage Total
Dividends from companies etc £31,865.00 @ 10% £3,186.50
  £43,135.00 @ 32.5% £14,018.87
Total income on which tax has been charged £75,000.00    
Income Tax charged     £17,205.37
minus 10% tax credits on dividends from UK companies (not repayable) £7,500.00
Income Tax due after dividend tax credits £9,705.37
From all employments £0.00
Total Income Tax due £9,705.37

Replies (4)

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By nogammonsinanundoubledgame
23rd Jul 2015 08:20

It's in the legislation

You only get dividend tax credits on dividends that fall within the charge to tax.

Sorry.  The calc is correct.
  It is not a new rule.  It has always been thus.

S.397(3) IT(TOI)A 2005

With kind regards

Clint Westwood

 

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By swatt66
23rd Jul 2015 09:51

Perfect answer!

 

.... although as one born before 2005 I always challenge the use of 'always'

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By nogammonsinanundoubledgame
23rd Jul 2015 11:57

It pre-dates 2005, at least

IT(TOI)A 2005 is a consolidating act.

S.397(3) was previously contained in S.231(3AA) ICTA 1988 as introduced by S.30(5),(6) F(No. 2)A 1997.

So possibly1997 is the start point.

With kind regards

Clint Westwood

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Portia profile image
By Portia Nina Levin
23rd Jul 2015 12:31

I assume

That the net dividends in the above example were £72,500, rather than £72,000?

If not, the dividends have been incorrectly grossed for a tax credit that is not there. Section 398 refers.

If so there is no "lost" £500 tax credit.

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