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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Paying agents - examples

These examples apply for payments up to April 2001. The paying agent scheme was abolished from April 2001.

Example 1 - Where no adjustment is needed

The person’s marginal rate on the foreign dividend is the lower rate, the tax credit relief due is less than the tax at the marginal rate and the paying agent has deducted UK Income Tax at the lower rate less provisional credit for the foreign tax.

      £
       
Gross foreign dividend     100.00
Less foreign withholding tax at 15%     15.00
      85.00
Less UK tax at 5% (that is      
lower rate 20% less credit at 15% on 100)     5.00  
         
  Amount received by shareholder     80.00
         
  Claimant’s total income consists of      
      £  
  UK untaxed interest   4,000  
  Foreign dividend   100  
      4,100  
  PA due = 3,445      
    £    
  Total income 4,100    
  Less PA 3,445    
    655    
  Tax thereon (655 at 20%)     131.00
      £  
  Total income   4,100  
  Less foreign income   100  
  Reduced total income   4,000  
  Less PA   3,445  
      555  
  Tax thereon (555 at 20%)     111.00
         
  Tax at marginal rate on foreign dividend     20.00
         
  Tax on foreign dividend (100 at 20%)     20.00
  Less credit allowable     15.00
        5.00
  Less UK tax deducted by paying agent     5.00
         
  No adjustment needed     NIL

Example 2 - Where a repayment is due

Tax at the person’s marginal rate on the foreign dividend is less than the credit relief due and the provisional credit allowed by the paying agent.

    £
     
Gross foreign dividend   100.00
Less foreign withholding tax at 15%   15.00
    85.00
Less UK tax at 5% (that is lower rate 20% less credit at 15% on 100)   5.00
     
Amount received by shareholder   80.00
     
Claimant’s total income consists of    
  £  
UK untaxed interest 3,400  
Foreign dividend 100  
  3,500  
PA due = 3,445    
     
Total income 3,500  
Less PA 3,445  
  55  
Tax thereon (55 at 20%)   11.00
     
Total income 3,500  
Less foreign income 100  
     
Reduced total income 3,400  
Less PA 3,400  
  NIL  
Tax thereon   NIL
     
Tax at marginal rate on foreign dividend   11.00
     
Tax on foreign dividend (at marginal rate)   11.00
Less credit allowable   11.00
    NIL
UK tax deducted by paying agent   5.00
     
Repayment due   5.00
     
The unrelieved foreign tax of 4.00 (15.00 - 11.00) is not repayable.    

The unrelieved foreign tax of 4.00 (15.00 - 11.00) is not repayable.

Example 3 - Further tax due

Tax at the person’s marginal rate on the foreign dividend is greater than the credit relief due and the provisional credit allowed by the paying agent.

      £
       
Gross foreign dividend     100.00
Less foreign withholding tax at 15%     15.00
      85.00
Less UK tax at 5% (that is lower rate 20% less credit at 15% on 100)     5.00
       
Amount received by shareholder     80.00
       
Claimant’s total income consists of      
    £  
UK trading profits   30,000  
Foreign dividend   100  
    30,100  
       
PA due = 5,910      
       
Total income 30,100    
Less PA 5,910    
  24,190    
       
Tax thereon 2,500 at 20%   500.00
Trading profits 21,200 at 25%   5,300.00
  390 at 40%   156.00
Foreign dividend 100 at 40%   40.00
      5,996.00
Total income   30,100  
Less foreign income   100  
       
Reduced total income   30,000  
Less PA   5,910  
    24,090  
Tax thereon (2,500 at 20%, 21,200 at      
25%, 390 at 40%)     5,956.00  
  Tax at marginal rate on foreign dividend     40.00
         
  Tax on foreign dividend (100 at 40%)     40.00
  Less credit allowable     15.00
        25.00
  Less UK tax deducted by paying agent     5.00
         
  Further tax due     20.00