Divs And Tax Credits

[MobileCheese]

Nothing more sobbering then doing your tax return just before xmas , how much I was doing a dummy run on one of the on online tax return sites.

In respect of dividends recieved the caculator asks for the net figure, this is I assume the amount I recieved in my pocket so I entered this in. Thing is though it adds the tax credit recieved to this, and then later on says this is aready paid, and removes it, but the % tax to be paid on it is caculated on the fig of net div + tax credit, is this correct example below,

net div recieved £1000
Total Divs £1100 (£1000 plus 10% tax credit)
20% xxx
32% xxx

May be its because its late but I thought the tax credit was a good thing but I cant see it in the figures. For previous years tax returns I have always entered the net amount ie the amount I got in my pocket.

Thanks

[martinb]

Nothing more sobbering then doing your tax return just before xmas , how much I was doing a dummy run on one of the on online tax return sites.

In respect of dividends recieved the caculator asks for the net figure, this is I assume the amount I recieved in my pocket so I entered this in. Thing is though it adds the tax credit recieved to this, and then later on says this is aready paid, and removes it, but the % tax to be paid on it is caculated on the fig of net div + tax credit, is this correct example below,

net div recieved £1000
Total Divs £1100 (£1000 plus 10% tax credit)
20% xxx
32% xxx

May be its because its late but I thought the tax credit was a good thing but I cant see it in the figures. For previous years tax returns I have always entered the net amount ie the amount I got in my pocket.

Thanks

If you're net divi is £1000, then gross is £1111.11. 10% tax credit is on gross - so 10% of £1111.11 is £111.11, which gives net of £1000.

The tax calculator works on gross figures to claulate tax due, then deducts tax you have already paid (including the divi tax credit). So, yes, it adds it on then takes it away again.

[Nixon Williams]

Dividends are paid net of the 10% tax credit so a net dividend of £900 is £1000 gross with £100 tax credit.

There is no further tax liability if you are NOT a higher rate tax payer.

Higher rate taxpayers pay additional tax on the amount that exceeds the higher rate threshold (£37295 in 2005/06 including the tax allowance, £38335 in 2006/07). This is calculated at 22.5% (32.5% -10% tax credit) of the gross dividend, or 25% of the net dividend.

The tax return calculations will account for this.

I hope this helps.

Alan