As title. Rookie question I know, but for the purposes of paying tax on dividends, earnings are grossed up 10% then taxed at 10%, meaning there is effectively no tax at this level. So why do it at all? Why not instead make it 0% tax up until 41865 then start taxing from there? What am I missing?
- Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
- Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!
Why do we have a 10% tax credit and a 10% tax?
Collapse
X
-
-
Originally posted by PerfectStorm View PostAs title. Rookie question I know, but for the purposes of paying tax on dividends, earnings are grossed up 10% then taxed at 10%, meaning there is effectively no tax at this level. So why do it at all? Why not instead make it 0% tax up until 41865 then start taxing from there? What am I missing?
If you stay below the upper rate threshold, then yes, you will in effect pay 0% in income tax. However most non-contractors do not get the bulk of their income from dividends so the personal allowance and thresholds do matter."Being nice costs nothing and sometimes gets you extra bacon" - Pondlife. -
Originally posted by DaveB View PostI think you are getting confused. CT rate is 20%.
The difference between this and just treating basic rate dividends as 0% is that even though the effective tax rate is nil, it's still the gross amount that counts towards your total income and therefore affects how much you can take in dividends before you reach the higher rate threshold.Last edited by TheCyclingProgrammer; 23 February 2015, 09:07.Comment
-
By notional it effectively just means non reclaimable. E.g my kids used to be able to reclaim it from their assets I held in trust. Removal of this effectively meant they got no tax allowances. But I digress.
if it were removed then anybody who is over basic rate would pay 42.5 on that slice not 32.5.
Given it is income paid from profits that have been fully taxed, often at a rate of 28 then this might been as a little harsh. Bringing the effective total rate on this for middle income earners to over 60.
The credit is supposed to recgnise at least to a partial extent - previously fully - that the income had previously been fully taxed.Comment
-
In the past the credit equated to basic rate tax band, and recognised that as corporate profit, from which dividends are paid, have been taxed at CT rates then there should be a basic rate credit.
It was a more transparent and logical then.
1988 budget, as I recall, Gordon Brown restricted reclaimable tax credits for charities and pension funds, and the 10% rate and credit was introduced then as a fudge to minimise the impact on charities (as I recall). Basically it was GBs raid on pension schemes, and why most DB schemes are now in deficit.Comment
-
-
Originally posted by ASB View Postif it were removed then anybody who is over basic rate would pay 42.5 on that slice not 32.5.Comment
-
Originally posted by TheCyclingProgrammer View PostNo, it would still be 32.5%. Currently it's 22.5% of the gross after the tax credit, or effectively 25% of the net amount.
I very much doubt the credit will be removed. But it would by defined tion affect anybody that is currently aboe to offset it. I.e. non basic rate payers who have elements of income via dividends.Comment
-
Originally posted by ASB View PostBaffled. If the credit were removed it would go up. There will be no credit to offset a part of it against..Comment
-
Originally posted by TheCyclingProgrammer View PostWhy would it go up? The rate is 32.5% before the application of the tax credit. If the credit was abolished, the rate would remain unchanged but the amount of tax paid would go up.
I wasnt clear. Agreed the rate doesnt go up. The tax paid on receipt does.Comment
- Home
- News & Features
- First Timers
- IR35 / S660 / BN66
- Employee Benefit Trusts
- Agency Workers Regulations
- MSC Legislation
- Limited Companies
- Dividends
- Umbrella Company
- VAT / Flat Rate VAT
- Job News & Guides
- Money News & Guides
- Guide to Contracts
- Successful Contracting
- Contracting Overseas
- Contractor Calculators
- MVL
- Contractor Expenses
Advertisers
Contractor Services
CUK News
- Streamline Your Retirement with iSIPP: A Solution for Contractor Pensions Sep 1 09:13
- Making the most of pension lump sums: overview for contractors Sep 1 08:36
- Umbrella company tribunal cases are opening up; are your wages subject to unlawful deductions, too? Aug 31 08:38
- Contractors, relabelling 'labour' as 'services' to appear 'fully contracted out' won't dupe IR35 inspectors Aug 31 08:30
- How often does HMRC check tax returns? Aug 30 08:27
- Work-life balance as an IT contractor: 5 top tips from a tech recruiter Aug 30 08:20
- Autumn Statement 2023 tipped to prioritise mental health, in a boost for UK workplaces Aug 29 08:33
- Final reminder for contractors to respond to the umbrella consultation (closing today) Aug 29 08:09
- Top 5 most in demand cyber security contract roles Aug 25 08:38
- Changes to the right to request flexible working are incoming, but how will contractors be affected? Aug 24 08:25
Comment