this 10p tax issue.....

Tiago

how does it affect tax on dividends ?

millie

I earn £162 per week and it is costing me an extra £3 a week, and I dont qualify for any other tax credits only the extra £50 winter fuel payment, so I have a loss of £100 per year

sammyjammy

I don't know the ins and outs of figures but anyone that is in recepit of WTC and loses out on the tax issue with their salary will have the amount made up for in their WTC (More than as far as Gordon Brown says) its only those that are single without children that are under 25 or that earn under the threshold of around £18.5k and work less than 30 hrs (i.e not in recpeit of WTC).

Sam

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Ruthibe73 wrote: »

Hi

I don't understand this tax business at all so could someone let me know if I'm going to be any better off?

I am 35 full time employed £14k per year, husband full time employed £14500 per year, two kids (10 & 15) and entitled to around £16 per year tax credits! oh and a mortgage (90k)

Will I be any better off?

I'm no expert but the new tax rules would suggest you should stay at about the same level of tax to be paid.

The main reason I'm writing is to ask why you are only entitled to £16 per year tax credits? Were you overpaid? it sounds a very low amount if it's child tax credit.

kijog

It's not easy - this is how I understand it works...

Dividends are in roughly the same position as savings - they have separate tax bands to the main 'salary' rates, of which the 10% is disappearing this year. For dividends there are two tax rates - 10% and 32.5% (don't ask me why!) and a threshold limit between the two (which is the same as the 22 - 40 threshold for income tax to make things easier).

The dividend income is added onto your salary income to decide which band it falls in. If it still falls below the threshold of £34,600 (most likely to be the case if you were on 10% or 22% on your salary) you did not have to do anything as the lower dividend rate is automatically taken out of any dividends at source. (a la PAYE - but not quite...)

If you were a higher rate taxpayer (40%) and therefore the dividend income landed above the £34,600 threshold, then you needed to make up the shortfall through your tax return (i.e 32.5% (the higher rate) - 10% (already deducted) = 22.5% ).

This is simplified, there is a possibility some dividend income might fall between the two. This would happen if your dividend income took you over the threshold for higher rate tax once you added to your salary (which fell into basic rate).

Essentially nothing has changed, with the abolition of the 10% salary band. The calculation is Salary + Dividends = Total. If the Total is less then threshold then do nothing. If Total is greater than threshold then you need to pay the difference.

HMRC's own explanation is here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4016453

in 2008-09 the rates for dividends haven't changed. Whether the threshold has I don't know. It should go up so it can stay the same as the main income tax one so the calculations are simple - but the HMRC page which lists the rates doesn't make this clear: http://www.hmrc.gov.uk/rates/it.htm , which isn't great.

The people who have the most to lose, and have done for the last few years, are non-taxpayers. The 10% that is automatically taken off at source is taken in the form of a tax credit. Unlike the savings income which zzzLazyDaisy can claim the rebate on, you can't claim back the 10%.

zzzLazyDaisy wrote: »

But some people will lose out and they are the poorest people. I am on incapacity benefit, which is taxable and takes up most of my personal tax allowance. I also have some interest on compensation from a car accident which tops up my income. That interest all fell within the 10% tax band, so previously 20% tax was automatically deducted by the bank, but then I got half of that tax rebated as I was on the 10% tax bracket. From 6th April 2008 the 10% tax band has gone, and my income tax has gone up by 100% (from 10% to 20%). This is my only income. There will be a lot of people on low incomes in a similar position.

The 'dividend tax credit' is a wheeze which goes something like this: "We are underpaying your dividend, the remaining ten per cent we are keeping as credit against the tax you *may* end up paying. But because it's a 'credit' you can't claim it back because you haven't 'actually' paid that tax." This is what caused the problems for pension funds today, as they have been losing out on ten percent on returns since Gordon brought this in.

Chuzzle

Ads - Oops forgot the extra 00's! We are getting around £1600 per year Child Tax Credits!

Mikeyorks

Tiago wrote: »

how does it affect tax on dividends ?

No effect .... per HMRC website (immediately under the note on the 10% savings band) :-

There are no changes to the 10% dividend ordinary rate or the 32.5% dividend upper rate.

edddd1

noh wrote: »

The 10% band still exists for the first £2230 of savings income so with your income mix you should be no worse off
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015566

Nigel

The "new" 10 percent savings rate is £2320 for the 08-09 year.

See http://www.hmrc.gov.uk/rates/it.htm (it is the bottom footnote on the page).

mardatha

so we, both older, both on benefits, lose out all the way. My husband has £21 tax taken off his SSP of £147.I hope gordon brown chokes on it.

edda

To quote the HMRC:

If you're a starting rate (10 per cent) taxpayer

Your interest will have been taxed at 20 per cent so you will be able to claim part of the tax back.

See this link:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739