savings tax do dividends count in total taxable income?

[MPwannadecentincome]

Hi all, I have tried googling this but get a mass of results which talk about the change in dividend tax. I am trying to find out if the 2015/16 savings nil rated tax band applies when total taxable income is calculated including or excluding dividend income.

As ltd co contractor with min salary and large dividends the nil rate tax band calculation for total taxable income it seems strange if the rules allow dividends to be excluded?

Accountant says they are excluded but didn't cite any reference to it, I wanted to verify this. Also whilst at it to check what the situation is for 2016/17 onwards.

Any linkys appreciated!

[jamesbrown]

Your accountant is correct. Dividend income is the top slice of income. Providing your personal allowance plus the starting (0%) rate for savings (5000) is greater than your income before dividends, some of your savings will be protected. There is a further personal savings allowance this year, which is impacted by total income (1000 as a basic rate taxpayer), but savings are otherwise taxed before dividends. The relevant legislation on the order in which different categories of income are taxed is S16 ITA 2007. Incidentally, within these rules, the tax payer can use the various allowances/bands in such a way that their tax is minimum.

[MPwannadecentincome]

Your accountant is correct. Dividend income is the top slice of income. Providing your personal allowance plus the starting (0%) rate for savings (5000) is greater than your income before dividends, some of your savings will be protected. There is a further personal savings allowance this year, which is impacted by total income (1000 as a basic rate taxpayer), but savings are otherwise taxed before dividends. The relevant legislation on the order in which different categories of income are taxed is S16 ITA 2007. Incidentally, within these rules, the tax payer can use the various allowances/bands in such a way that their tax is minimum.

Many thanks - good to know then that there is another (small) benefit to Ltd Co operation :-)