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ACCA Strategic Professional · Advanced Taxation (UK) · Investment and other expenditure that reduces tax liabilities

Hamid is a higher rate taxpayer with no other dividend income. He receives a dividend of £10,000 from his wholly owned company. Using the rates in the ATX-UK tax rates and allowances, what is the income tax payable on the dividend?

The tax is £3,206. The first £500 of dividends is covered by the dividend nil rate band, and the remaining £9,500 is taxed at the higher dividend rate of 33.75% because Hamid is a higher rate taxpayer.

  1. A£3,375
  2. B£3,206Correct
  3. C£3,150
  4. D£875

Explanation

The dividend nil rate band is £500, leaving £9,500 taxable. At the higher dividend rate of 33.75%, tax is £9,500 x 33.75% = £3,206 (rounded). The £3,375 option ignores the nil rate band.

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