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HMRC internal manual

Repayment Claims Manual

From
HM Revenue & Customs
Updated
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Repayment calculations including Stock/Foreign Income Dividends

STOCK DIVIDENDS 1992/93

The tax credit is 25% of the gross income for tax purposes, but the Stock Dividend is not chargeable at the lower rate of 20%

If an individual has Stock Dividend income, it must be charged at the Basic Rate. This is to ensure that the income treated as paid of 25% is not used to cover liability at 20%.For example
 

BSI 500 Tax 125.00
       
Interest 3445    
Stock Div 100 Tax 25.00
Total 4045   150.00
PA 3445    
Charge: 600    
@ 20% 500 Tax 100 125.00
Repay     25.00

The repayment is not £30 because the £100 Stock Dividend is chargeable at 25%. A`sundry’ tax adjustment of £5 is needed.

You are recommended to explain the position to the taxpayer, making clear that the income tax treated as paid is not repayable.

Omitting the income from the computation in the hope of simplifying it can cause confusion for the claimant, and lead to errors with

  • Age Allowance
  • higher Rate liability
  • transfer of allowances
  • R89/R85 declarations

 

STOCK DIVIDENDS AND FOREIGN INCOME DIVIDENDS 1993/94 -2014/15

The income tax treated as paid is 20%. This is in line with the lower rate of tax and the credit attaching to all other Company Dividends.

The gross income is chargeable at 20%.

Include the gross income in the repayment computations. Omitting it will cause the problems already mentioned.

Explain the position to the taxpayer making clear that the income treated as paid (20%) is not repayable.

The computer will charge the income at the basic rate if the lower rate is exhausted.

If liability at 25% does arise, enter a sundry tax adjustment to ensure that the Stock or Foreign Dividend is charged at 20%.

If liability arises at 40%, make a further adjustment to ensure that the Stock or Foreign Dividend income is charged as the top slice of income. Use form 930 for this purpose.

STOCK DIVIDENDS AND FOREIGN INCOME DIVIDENDS 2015/16 ONWARDS

Note that from April 2016 Dividend Tax Allowance means the tax credit no longer applies and repayments are not usually appropriate for tax on dividends after that date.