Re: The order of taxable income for Directors?

In message of Sun, 16 Jul 2006, Ronald Raygun writes
David Floyd wrote:

In message of Sun, 16 Jul 2006, Ronald Raygun writes
David Floyd wrote:


Work it out on (say) only income of dividends received £1980, and Gift
Aid payment of £780.

Well, the gift aid on a £780 donation is £220 and it must be shown that
tax of at least £220 has been paid (or treated as paid using credits),
and if not then any shortfall must be reimbursed to HMRC.

The £1980 net dividends gross up to £2200 but as this is below the PA
the £220 tax credit is wasted and the full £220 needs to be reimbursed.


No! You are wrong in this hypothetical example (which was given to prove
a point).

No, I am not.

Yes you are - see below for explanation!


Work it out for yourself. Using SA151W if you must.

Have you worked it out with SA151W? Try it.

Certainly I have, in order to check that software calculations were correct; and that was when it was found that the original SA151W was wrong.


The steps at the bottom of page 7 of the TCG (SA151W) are quite clear
about this.

Then you obviously have the incorrect earlier version. Take a look at:
http://www.hmrc.gov.uk//worksheets/sa151w.pdf
which is the current and correct version.

From this you will see that the instructions for the entries in boxes w66 and w68 were originally incorrect.

It does not pay to put faith in explanatory leaflets - read the Taxes Acts for correctness.

Using your figures (only income 2200 gross dividends, 1000 gross gift aid)
and the 2005/06 box numberings, here are the figures:

w62 0
w63 1000
w64 220
w65 220
w66 2200
w67 220
w68 4895
But is 2200 in the corrected version
w69 220
w70 2200
w71 2695
But is 0 in the corrected version
w72 269
But is 0 in the corrected version
w73 0
But is 220 in the corrected version
w74 220 "income tax due after taking off tax credits"
But is 0 in the corrected version

QED
?



I fall into this example - I do not have to go into full details, but I
am working towards retirement so 100% of my SE earnings are invested in
a Retirement Annuity Contract,

I see. I'll refer to these investments loosely as pension contributions
below, their salient feature being that they attract full tax relief.

My other (mostly dividends) income is
below the PA level, AND I make Gift Aid donations, AND I am not collared
for any GA tax shortfall.

Aha! I expect your pension contributions complicate the calculation.

Not at all

[load of nonsense removed]

Lets say SE income is £10000 and RAP is £10000.
Then the calculation ends up viz:
UK Divs & tax credits £2200
Other income £10000
Total income £12200
minus Deductions
RAR £10000
PA £4895
Total £14895
taxable income £0
Tax due on Gift Aid Payments £220
minus non-payable tax credits £220
Income tax due £0

Note: This is from using the HMR&C online filing site (you can use this site for examples as long as you don't SUBMIT it!!)

It also agrees with commercial software as did the first hypothetical example above.

I suggest you try putting your *unadulterated* hypothetical example
figures through those "IR approved" commercial packages, i.e. omitting
your SE income and pension contributions. I think you'll find you
*would* get collared for the GA liability then.


Wrong then aren't you. And the reason you are wrong is that you are using the original SA151W without checking the facts or using commercial packages the IR site yourself.

DF

.