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22 October 2000
For 1999-2000 my client has the following income:
Net dividend 45,000
Tax credit 5,000
Salary 3,335
Personal allowance (4,335)
Taxable 49,000
Tax is chargeable on the first £28,000 at 10 per cent and the balance of £21,000 at 32.5 per cent. However, I would be interested to hear readers' views as to whether my client should receive a credit for the £5,000 tax on the dividend or whether this should in fact be restricted to a credit of 10 per cent on the net taxable income of £49,000.
Net dividend 45,000
Tax credit 5,000
Salary 3,335
Personal allowance (4,335)
Taxable 49,000
Tax is chargeable on the first £28,000 at 10 per cent and the balance of £21,000 at 32.5 per cent. However, I would be interested to hear readers' views as to whether my client should receive a credit for the £5,000 tax on the dividend or whether this should in fact be restricted to a credit of 10 per cent on the net taxable income of £49,000.
For 1999-2000 my client has the following income:
Net dividend 45,000
Tax credit 5,000
Salary 3,335
Personal allowance (4,335)
Taxable 49,000
Tax is chargeable on the first £28,000 at 10 per cent and the balance of £21,000 at 32.5 per cent. However, I would be interested to hear readers' views as to whether my client should receive a credit for the £5,000 tax on the dividend or whether this should in fact be restricted to a credit of 10 per cent on the net taxable income of £49,000.
The Revenue computer automatically restricts the credit, but the tax officer I queried this with seemed uncertain as to whether this was in fact correct.
(Query T15,697) JRL.
For 1999-2000 section 1, Taxes Act 1988 applied a starting rate to the first £1,500 of total income and a higher rate to total income above £28,000, allowing the basic rate to bite on the remainder. As regards the latter, section 1A(1A) required such income (so far as relevant here) to be charged at the lower rate (20 per cent) unless it was Schedule F income (dividends), in which case the Schedule F ordinary rate was to apply. By section 1B that rate was 10 per cent (the higher rate of 32.5 per cent was confirmed for income above £28,000).
Section 835(4), Taxes Act 1988 says that (in general) any deductions allowable in computing a person's total income are to be treated as reducing income of different descriptions in the order which will result in the greatest reduction of his liability to tax.
Section 231, Taxes Act 1988 grants a tax credit of one-ninth which an individual may claim to have set against his total income. However, section 231(3AA) says that the aggregate amount of such credits claimed must not exceed the aggregate amount of the tax credits brought into charge in respect of the distributions (dividends) concerned.
The client's personal allowance is best utilised first against salary, but reducing Schedule F income by £1,000. The tax credit will all be utilised except for £100, for which repayment is barred by section 231(3AA) noted above. — Lane.
The tax credit is £4,900. The authority for this treatment is section 231(3AA), Taxes Act 1988 which limits the relief to the tax credits on dividends actually brought into charge. In this case the taxable dividend income is £49,000. Section 20(1), Taxes Act 1988 treats the £49,000 as an aggregate of net distributions and their associated tax credits. So the £49,000 is made up of a net distribution of £44,100 plus a one-ninth tax credit of £4,900. — Septimus.
Editorial note. Most of the eleven respondents were agreed about this query, but some also highlighted the complications of the existing United Kingdom tax calculation system. If only the Tax Law Rewrite could be extended to simplification!!
Net dividend 45,000
Tax credit 5,000
Salary 3,335
Personal allowance (4,335)
Taxable 49,000
Tax is chargeable on the first £28,000 at 10 per cent and the balance of £21,000 at 32.5 per cent. However, I would be interested to hear readers' views as to whether my client should receive a credit for the £5,000 tax on the dividend or whether this should in fact be restricted to a credit of 10 per cent on the net taxable income of £49,000.
The Revenue computer automatically restricts the credit, but the tax officer I queried this with seemed uncertain as to whether this was in fact correct.
(Query T15,697) JRL.
For 1999-2000 section 1, Taxes Act 1988 applied a starting rate to the first £1,500 of total income and a higher rate to total income above £28,000, allowing the basic rate to bite on the remainder. As regards the latter, section 1A(1A) required such income (so far as relevant here) to be charged at the lower rate (20 per cent) unless it was Schedule F income (dividends), in which case the Schedule F ordinary rate was to apply. By section 1B that rate was 10 per cent (the higher rate of 32.5 per cent was confirmed for income above £28,000).
Section 835(4), Taxes Act 1988 says that (in general) any deductions allowable in computing a person's total income are to be treated as reducing income of different descriptions in the order which will result in the greatest reduction of his liability to tax.
Section 231, Taxes Act 1988 grants a tax credit of one-ninth which an individual may claim to have set against his total income. However, section 231(3AA) says that the aggregate amount of such credits claimed must not exceed the aggregate amount of the tax credits brought into charge in respect of the distributions (dividends) concerned.
The client's personal allowance is best utilised first against salary, but reducing Schedule F income by £1,000. The tax credit will all be utilised except for £100, for which repayment is barred by section 231(3AA) noted above. — Lane.
The tax credit is £4,900. The authority for this treatment is section 231(3AA), Taxes Act 1988 which limits the relief to the tax credits on dividends actually brought into charge. In this case the taxable dividend income is £49,000. Section 20(1), Taxes Act 1988 treats the £49,000 as an aggregate of net distributions and their associated tax credits. So the £49,000 is made up of a net distribution of £44,100 plus a one-ninth tax credit of £4,900. — Septimus.
Editorial note. Most of the eleven respondents were agreed about this query, but some also highlighted the complications of the existing United Kingdom tax calculation system. If only the Tax Law Rewrite could be extended to simplification!!
