Work out the dividend tax?

Question

http://uk.answers.yahoo.com/question/index?qid=20070820042049AAhWXI4&r=w

How did you work out 4725 can you break it down for me please "Roughly speaking the tax on the dividend would be £4,725 less the credit of £3,555 equals £1,170 tax to pay." - thankyou for a brilliant explanation

how did you get £3,555

Answer 1

Your £32,000 dividend is deemed to be net after deduction of 10% tax.

So it is a gross dividend of £35,555 minus 10% tax of £3,555.

No extra tax is due on this dividend for the part which is below the higher rate band. But adding on you salary of about £9,000 means that something like £5,000 will be chargeable at higher rate.

The tax on this part is at 32.5% less the 10% already deemed to have been deducted, which is £1,125.

The original answer was calculated more accurately than my approximation here.

Answer 2

Companies pay 'basic rate' equivalent tax on Dividends before they pay you ..

.. so if you are on higher rate Tax (40%) you only have to pay the difference between that and basic rate (currently 22%) = 18% on divcidends you recieve.

NB> If you are on 40% Tax you should consider putting every spare penny you have into your Pension in order to get your 40% Tax back .. (see link)