Notional tax credits for dividends

Bea787

Hi,

Please can someone help me to understand the above? Am trying to sort tax returns and have two figures on some old shares statements - dividends (which is an amount that I was paid) and tax credit at 10%.

Am probably being thick but have looked online and understand the following - the tax credit is 1/9th of the dividend. OK ...

So what is the 10%? What does it mean by credit? Where did this figure go - I read that the payer does not pay tax but the figure is non refundable - so has it already gone to the tax man and if so from who? from what i would have otherwise earned from the dividend? I don't think it can mean that as I read I also have to add the two figures to put on my tax return ...

As you can see I'm very confused but I'm sure this is perfectly simple when you know how - so if someone can make it clear for me I'd really appreciate it!

Thanks

xylophone

http://www.hmrc.gov.uk/taxon/uk.htm
might help.

CLAPTON

if the 'gross' dividend was £100
tax at 10% = £10
so actual net dividend paid is £90

so the tax as a proprotion of the received dividend of £90
is 90/9 = £10


so 10% of gross but 1/9 of net

this amount is not actually paid by anybody

it is only important if you pay higher rate tax in which case there is some tax to pay at 32.5% of gross i.e. £32.5 but you have a credit of £10 so you owe £22.5
which is 22.5/90 = 25% of the received dividend


and who said that tax isn't taxing

John_Pierpoint

CLAPTON wrote: »

so 10% of gross but 1/9 of net

this amount is not actually paid by anybody

Does in not appear in the company's tax return these days?
It used to be called advance corporation tax. and dates back to the fuss when corporation tax was introduced and ordinary tax payers realised that their share of the profits were being taxed twice.
Once as corporation tax when the company reported them to the tax man and again when the ordinary tax payer reported the dividend on their tax return.

The result was that a lot of shares were converted into loan stock, as the interest that had to be paid on the loan, counted as a business expense, reducing the corporation tax payable. Anyone for "Junk bonds" ?
[Just as the interest on a mortgage is a business expense for a buy-to-let business and the tenants now have a justifiable beef: They would not get any tax relief if they got a mortgage and bought out the landlord.]

Hence the ruling that the 10% tax shown against the dividend counts as satisfying the tax liability for ordinary rate tax (usually 20%) in the hands of the ordinary tax payer.

Now tell us all that your total income is over £100,000 a year;)

grey_gym_sock

in case it's not clear, the figure you enter on the tax return is the amount you were paid, ignoring the notional tax credit.

advance corporation tax was abolished by gordon brown. there are some words that you wouldn't expect to see in the same sentence!

John_Pierpoint

So it is just ordinary corporation tax now is it? ie it can wait until the company submits its annual figures to the tax man?

grey_gym_sock

now you mention it, i think at least bigger companies do have to pay some corporation tax in advance. it just isn't linked to dividends, like ACT used to be.

Pennywise

John_Pierpoint wrote: »

So it is just ordinary corporation tax now is it? ie it can wait until the company submits its annual figures to the tax man?

Paying a dividend or not has no effect on the corporation tax liability these days. There's no mention of it on corporation tax returns as it's completely irrelevant.

Pennywise

grey_gym_sock wrote: »

now you mention it, i think at least bigger companies do have to pay some corporation tax in advance. it just isn't linked to dividends, like ACT used to be.

Yes, larger companies have to make quarterly payments on account of 1/4 of the annual corporation tax liability - based on profits, not dividends.