SAIM5140 - Dividends and other company distributions: no tax credits on non-qualifying distributions: tax years up to 2015-16: example
Example of tax charge on non-qualifying distribution
Michael holds 10000 partly paid up 拢1 redeemable shares in Bonus plc. The amount paid up is 75 pence per share. The company uses its shareholders鈥� funds to credit the partly paid shares to make them fully paid. Michael has received a non-qualifying distribution of 拢2500, and is treated as having paid income tax on the distribution at the dividend ordinary rate, that is 拢250.
Shortly afterwards, Bonus plc repays 25% of its share capital. Michael now holds 7500 shares and has received a qualifying distribution of 拢2500. The tax credit is 拢278 (2500x 1/9) making a gross amount of 拢2778. Tax at the dividend ordinary rate of 10% is 拢277, of which 拢250 has been satisfied by the notional income tax on the non-qualifying distribution.
Liability at dividend upper rate
If Michael is liable at the dividend upper rate the tax payable on the non-qualifying distribution will be
2500 @ 32.5% : 812.50
Less notional tax : 250.00
Additional tax due : 562.50
Michael鈥檚 liability on the qualifying distribution will be on the augmented distribution of 拢2778 (2500 + the tax credit of 278).
Augmented distribution : 2778 @ 32.5% = 902.85
Less tax credit: 278.00
Tax due: 624.85
Less tax paid on non-qualifying distribution : 562.50
Additional tax due : 62.35