Every month we go through our CeMAP forums at http://www.cemap123.co.uk (which our students have access to as part of their CeMAP Training programme) to see what interesting queries have been posted.

This months CeMAP query is very similar to other queries regarding Share Dividends. As it seems to be a subject that confuses many students we’ve decided to highlight it again.

Haiders Question:

i came across this following question, which i didn’t know how to do the working out for:

Will received a cheque for £300 in respect of share dividends. What was the gross amount upon which this payment was based?

Also if this question was written differently e.g. persons who are in a different tax band etc.. how would it be answered, the working out and how to work out how much tax needs to be paid and also if tax was already paid what was the original amount of dividends gross.

Does it make any difference if person is a tax payer or not? and what percentages and how is it worked out how much each person pays depending on if they are BRT, HRT or ART or even non-tax payer.

David’s answer:

Good morning Haidar,

Answer to your query is quite straight forward.

As you are probably aware, dividends are paid net of the 10% dividend tax.

Therefore as the client has received £300 dividend, this represents 90% of the dividend (because the tax has already been deducted)

Therefore divide by 90 x 100 = 333.33 – or even easier divide by 0.9. This calculation then gives the gross amount of the dividend.

Taxation:

If the client is a BRT, there is no further tax liability

If the client is a HRT, then they have to pay an additional amount of tax of 22.5% based on the GROSS dividend (this is why we need to know how to calculate the gross amount) – so they are paying 32.5% in total. 333.33 x 22.5% = £75.00. This makes the total tax due on a £300 dividend of 108.33 (75.00 + 33.33). The answer to how much extra tax is due (should you get the question) would be £75. The answer to how much tax is due in TOTAL would be 108.33

If the client is an ART then its 27.5% and 37.5%. So 333.33 x 27.5% = 91.66. Total tax due would be 91.66 + 33.33 = £125

I hope this answers your query. Should you need any further explanation please let us know

Regards

 David Airs (Futuretrend CeMAP Tutor)